After sacking founder Gautam Thapar as the chairman of the company, fraud-hit CG Power & Industrial Solutions has moved to declassify him as promoter, as any association with him will be prejudicial to the interests of the company, according to the firm's annual report.
The company had in August stated that an investigation instituted by its board had found major governance and financial lapses, including some assets being provided as collateral and the money from the loans siphoned off by "identified company personnel, both current and past, including certain non-executive directors."
Thapar, who was non-executive chairman of the company, was removed by its board on August 29.
Its new chairman Ashish Kumar Guha in the firm's latest annual report said CG Power has been impacted by several irregular transactions and a detailed investigation concluded that there were "large and significant malfeasances."
"The board acted swiftly once it received the Phase 1 (investigation) report and took major steps to protect the interests of your company, including initiating significant changes in corporate governance," he said.
"Given the above, your company considers any further association with Mr Gautam Thapar and the promoters, as prejudicial to the interests of your company and its stakeholders."
The firm on October 18 filed an application with market regulator Securities and Exchange Board of India (Sebi) for reclassification of Thapar's Avantha Holdings Ltd and others from promoter shareholder to public shareholders. The application is pending with Sebi.
Reclassification of Avantha will be easier after its shareholding in CG Power fell to less than 1 per cent after lenders invoked pledges on shares pledged for taking loans.
Thapar-led promoter group held 21.54 crore shares, constituting 34.38 per cent stake in the company, as on April 1, 2018, according to the annual report.
Almost all of these shares were pledged by the promoters to their lenders, it said.
"On March 8, 2019, Vistra ITCL India Ltd, acting on behalf of BOI AXA Mutual Fund, KKR India Debt Opportunies Fund II and KKR India Financial Services Pvt Ltd, invoked its pledge on 6.76 crore equity shares constituting 10.8 per cent shareholding in company held by Avantha Holdings.
"Further, on March 20, 2019, Vistra ITCL India Ltd, acting on behalf of L&T Finance Ltd, invoked its pledge on 6.76 crore equity shares constituting 10.8 per cent shareholding in the company held by Avantha Holdings Limited (Promoter)," it said, adding Yes Bank on May 6 invoked pledge on over 8 crore equity shares (12.77 per cent stake).
After this, shareholding of the promoters of the company decreased to 8,574 equity shares, constituting 0.001 per cent of total share capital of company as of date, it said.
CG Power said it filed the application with Sebi in view of the reduction in shareholding of the promoters in the company to a negligible percentage, subsequent detection of unauthorised transactions leading to fraudulent transfers to Avantha Holdings and its related entities and consequent removal of Thapar as chairman.
Stating that CG Power was cooperating with all agencies in probe of financial irregularities, Guha said corrective actions will follow in the future as necessary.
"Additionally, a law firm is carrying out a detailed forensic to identify individuals responsible for this (fraud) as well as to ensure all such transactions have been identified as well as represented in the financial statements appropriately. On the basis of the final report, we will take the necessary course of law as advised," he said.
Guha, who was appointed chairman of the company after Thapar was removed from the post, said business performance of CG Power for 2018-19 was affected due to a severe crunch in working capital.
"The company has a robust order book and continues to work closely with its customers, suppliers, lenders and other stakeholders.
"Capital restructuring of the business and the company is critical as the working capital gap is wide and while the businesses are intrinsically strong, this starvation has led to a lower revenue," he said.
The company's management and its board are attempting to mitigate liquidity issues to the extent possible and assessing various options for raising the required capital to enable optimum business performance in the future, he said.