A financial fraud worth thousands of crores has been detected at the Gautam Thapar-promoted CG Power and Industrial Solutions.

The company on Tuesday informed stock exchanges that an investigation by an independent law firm had found that some employees had carried out unauthorised transactions, which led to a potential understatement of not only the liabilities of CG Power but even advances to related and unrelated parties of the company and the group.

CG Power shares crashed 20 per cent on Tuesday. Following this, the share price of banks and asset management companies with holdings in the company also crashed.

Public shareholders of CG Power are now stuck as they may not be able to exit the stock.

The CG Power promoters have pledged 100 per cent of their holding in the company. YES Bank fell 7.1 per cent as it holds a nearly 13 per cent stake in the company, acquired through the revocation of a pledge.

Other large shareholders include HDFC MF with 9.18 per cent, Aditya Birla MF: 8.94 per cent; Franklin Templeton: 3.1 per cent; LIC: 2.25 per cent; Reliance Capital: 2.03 per cent and IDFC Sterling Fund with 1.53 per cent.

Unauthorised transactions

“The total liabilities of the company and the Group may have been potentially understated by approximately ₹1,053.54 crore and ₹1,608.17 crore, respectively, as on March 31, 2018; and by ₹601.83 crore and ₹401.83 crore, respectively, as on 1 April 1, 2017,” the company said in the statement to exchanges.

CG Power further disclosed that the advances to related and unrelated parties have been potentially understated by ₹1,990.36 crore and ₹2,806.63 crore, respectively, as on March 31, 2018; and by ₹1,479.34 crore and ₹1,331.47 crore, respectively, as on April 1, 2017.

CG Power Managing Director KN Neelkant was away from day-to-day management during the investigation and Chief Financial Officer VR Venkatesh, who had resigned on March 8, was asked to continue till the year ended March 31, 2019.

Legal and shareholder advisors told BusinessLine that even the company’s independent directors should be in the dock for failing to raise the alarm on questionable deals for years. “Independent directors should be asked why they failed in raising concerns when all these questionable deals were going on. After all, they have a role to play on the board ... but nobody seems to hold them responsible. It has been seen in the IL&FS fiasco, too,” said JN Gupta, former SEBI Executive Director and founder of shareholder advisory SES.

Loans without authorisation

The investigations also found that certain assets of the company were purportedly provided as collateral without due authority; and the company was made a co-borrower and/or guarantor for enabling ostensibly unrelated third parties to obtain loans without due authorisation. “The moneys so obtained were immediately and without due authorisation routed out of the company, either by itself or from its subsidiaries or ostensibly unrelated parties to certain related parties,” CG Power disclosed.

“These transactions appear to have been carried out by various means, including inappropriate netting off, using ostensibly unrelated third parties, routing transactions through subsidiaries, promoter affiliate companies and other connected parties. These may have potentially resulted in misstatement of past financial statements,” CG Power said. The board has ordered a forensic investigation in the entire matter.