CG Power and Industrial Solutions Ltd (“CG Power”), which makes power equipment – electrical switchgears have tumbled 70% in the last 3 months on the stock exchanges with news of serious accounting lapses at the company. The stock of the company is brooding at the bourses as to what extent the problems are! From outlook, it seems erstwhile promoters of CG Power used acquisition as a tool for syphoning of money & to hide its losses. In this article, we have articulated how promoters used acquisition as a tool.

In March 2019, the Board of Directors of CG Power constituted Operations Committee (“Ops Committee”) with aim of improving stakeholders’ value. However, while working on one of its priority tasks of seeking refinancing, of certain facilities and as part of conducting financial analysis, the Ops Committee was made aware of some unauthorised transactions. Digging further, they came out with some serious accounting lapses. As a result of this, on 10th May 2019 the CEO and Managing Directors K N Neelkant, sent on leave by board to enable proper investigation into financial irregularities, continues in his role for now. On 21st June 2019 Letter by the Company for delay in submission of audited financial results for 4th quarter and year ended March 31, 2019 submitted with exchange. On 19th August, the Board of Directors released a note explaining all accounting lapses they came across.

On 29th August 2019, Mr. Gautam Thapar removed as the chairman of board with the immediate impact. Meanwhile, CG Power recently saw many management changes. Managing director K N Neelkant was away from day-to-day management during the period of investigation. Sudhir Mathur, who was then an independent director of the company and a member of the operations committee, was re-designated as a whole-time executive director of the company with effect from May 10, 2019, to be more involved in the day to day management of the company. CFO VR Venkatesh, who had resigned on March 8, 2019, was asked to continue till the finalisation of financial results for the year ended March 31, 2019 however on 30th August 2019 removed from the position of CFO with immediate effect.


Certain transactions were carried out by some key managerial personnel and other employees prejudicial to the company’s interest, according to an exchange filing. The transactions appeared to have been undertaken in a seemingly “fraudulent manner” warranting investigation.

While working the Ops Committee was made aware of some unauthorised transactions by certain employees of the Company. This panel received a letter from a financing company about an interest payment failure, which the committee was unable to track in CG Power’s books, implying that the loan on which the power which equipment maker defaulted was not shown in the balance sheet. The Ops Committee was also made aware of a letter received by the Company from a financing company regarding a certain interest payment failure which the Ops Committee was unable to trace or ascertain from the financials of the Company.

In a separate case, CG Power’s managing director received a request from a bank to replace a cheque whose validity was about to expire. And here, too, the operations committee could not track the said liability in the company’s financials. To asses this, the panel appointed an independent legal firm to investigate.

The Legal Firm also took assistance of an independent consultancy firm for the purposes of the said investigation. In the meanwhile, during the audit of the Company, one of the joint statutory auditors of the Company (viz. M/S S R B C & CO LLP), sought information and explanations from the Company regarding certain other transactions as part of the notice issued to the Company under Section 143(12) of the Companies Act, 2013. These additional transactions were also included in the scope overview of the Legal Firm.

Further, certain additional suspect, unauthorised and undisclosed transactions and entries were identified during further verifications. The said report was submitted to the Risk and Audit Committee (RAC). The RAC has also received from the management the compilation of unaudited standalone and consolidated financial position and profit and loss of the Company for the year ended 31 March 2019 and restated financial information and profit and loss for the year ended 31 March 2018 and statement of financial position as on April 1, 2017, after taking into consideration the potential impact of the Report Transactions and Additional Transactions.  Further RAC gave inputs to the Board and which were as under,

Key Findings of The Investigation (Source BSE)

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