CG Power Fraud: SEBI Fines Gautam Thapar ₹10 Crore, Bans 11 Entities

SEBI Delivers Final Order in CG Power Case

The Securities and Exchange Board of India (SEBI) has concluded its investigation into the financial irregularities at CG Power and Industrial Solutions, imposing a total penalty of ₹30.15 crore on 11 entities. In a detailed 248-page order, the market regulator has also barred the company's former chairman, Gautam Thapar, from the securities market for five years and levied a personal fine of ₹10 crore for his role in the fraudulent scheme.

Breakdown of Penalties and Bans

The regulatory action targets key individuals and entities who were found to be involved in a coordinated effort to divert funds and misrepresent the company's financial health. Besides Thapar, three promoter-related entities—Avantha Global, Action Global, and Solaris Industrial Chemicals—were each fined ₹5 crore and banned from the market for five years. Former company executives, including CFO VR Venkatesh and directors Madhav Acharya and B Hariharan, also face significant penalties and market restraints.

Here is a summary of the penalties imposed by SEBI:

The Core Allegations: A Concerted Fraud

SEBI's order stated that the entities "acted in concert to execute a fraudulent scheme of diversion of funds or creating encumbrances of assets of a listed entity." The regulator found that each party played a specific role to disguise the true nature of the transactions. The investigation concluded that the individuals involved misused their authority to facilitate these transactions, which ultimately benefited promoter-affiliated companies at the expense of CG Power and its public shareholders.

The Scale of Financial Misrepresentation

The fraudulent activities led to a significant understatement of the company's liabilities and advances. This misrepresentation painted a false picture of the company's financial stability. According to SEBI's findings, the liabilities and advances were understated by thousands of crores over multiple financial years.

Background of the Investigation

The issue first came to public attention in August 2019 when the board of CG Power disclosed significant accounting irregularities. Acting on these reports, SEBI initiated a suo-moto investigation. In September 2019, the regulator passed an interim order restraining Thapar and other key officials from the market. SEBI also directed the BSE to appoint an independent auditor to conduct a detailed forensic audit of CG Power's books from FY 2015-16 onwards. The findings from this forensic audit formed the basis of a show-cause notice, which has now culminated in this final order.

How the Scheme Was Executed

The investigation revealed several methods used to perpetrate the fraud. These included using CG Power's assets as collateral to obtain loans for third parties without board authorization, routing transactions through a complex web of subsidiaries and promoter-affiliated companies, and using different accounting heads to conceal payments. Furthermore, the probe found that interest-free advances were facilitated to companies related to the promoter group, directly benefiting them while harming CG Power.

Impact on Market Integrity

SEBI noted that the concealment of these transactions from the board and public shareholders interfered with the normal mechanism of price discovery in the market. By misrepresenting financial statements, the entities created a misleading appearance regarding the company's performance, which effectively manipulated the share price of CG Power and undermined the integrity of the securities market.

Conclusion

The stringent penalties and bans imposed by SEBI underscore the severity of the corporate governance failures at CG Power. The order brings a degree of closure to a case that has been under investigation for several years. SEBI has also directed CG Power to continue taking all necessary steps, including legal action, to recover the amounts due to the company, ensuring that the interests of its investors are safeguarded.