The National Company Law Tribunal (NCLT) on Thursday allowed the ministry of corporate affairs (MCA) to reopen and recast the financial accounts of CG Power and Industrial Solutions Ltd.
The tribunal said the allegations made against former CG Power chairman Gautam Thapar, in particular, and other contesting respondents are very serious in nature.
“As it could be understood the seriousness with which the Union of India, ministry of corporate affairs, the applicant, is pursuing this matter, speaks volumes about the alleged irregularities,” said the NCLT order.
MCA had sought restatement of the financial accounts of the manufacturing company, suspecting fraud, as the financials did not reflect the true picture of its accounts.
This is only the second time that MCA will reopen and recast the financial statements of a company. The first instance was in the case of debt-ridden
Under the Companies Act, an entity can reopen accounts only in two situations: One, when the board believes there is negligence in preparing the accounts, or a fraud has been committed, and, two, when the government believes the statement of accounts is incorrect.
In this case, both the government and the new management suspect fraud. Thapar was removed from the post of chairman on 30 August, after CG Power informed the stock exchanges that it was in the midst of restating its earnings after discovering suspected fraudulent transactions.
The MCA, during its submission, said the company understated its liabilities for financial years 2017 and 2018 at ₹402 crore and ₹602 crore, respectively, as against the real liability of ₹1,053 crore and ₹1,608 crore, respectively. The ministry said CG Power’s net worth was also understated.
“The 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,” said MCA in its submission, according to the NCLT order.
The acts resulted in CG Power shareholders losing the value of their holding, which amounts to fraud on its public investors, according to the MCA.
The tribunal allowed recasting of the financial accounts and also asked the government and investigative agencies to rely upon their own investigations and not the Vaish report, commissioned by the present management of CG Power.