CG Power Case: Ministry of Corporate Affairs Approaches NCLT Against erstwhile Administration of CG Power

CG Power Case: Ministry of Corporate Affairs Approaches NCLT Against erstwhile Administration of CG Power

The Ministry of Corporate Affairs (MCA) strike the National Company Law Tribunal (NCLT) Mumbai bench towards the administration of Avantha Group-owned CG Power & Industrial Solutions.

MCA sought the intervention of the Tribunal stating that "the erstwhile management had allegedly collected and seeking to distribute it to the victim of fraud". However, the company and its Chairman Gautam Thapar did not remark on it.

The background of the case is that in 2019, the board of CG Power & Industrial Solutions needed to restate its earnings after discovering suspected fraudulent transactions by Thapar for alleging misappropriation of funds. However, the said allegations were refuted by the Chairman and he claimed that he had repaid Rs 4,000 crore to the lenders since 2015.

The Ministry sought for the NCLT's intervention to direct all of the defaulters, along with Gautam Thapar to reveal their movable and immovable belongings and likewise restraining them from promoting, alienating, or creating any third-party rights into their belongings till last order.

It has also sought the appointment of its two nominee administrators on the board of the corporate. MCA has named Gautam Thapar, VR Venkatesh, Madhav Acharya, B Hariharan, Atul Gulatee, Nagendra Sayyaparaju, Abhishek Kabra, Sudhir Mathur, and Shikha Kapadia in its petition as respondents.

The petition of the Ministry also includes Avantha Holdings, Action Global, Blue Garden Estate, BILT Graphics Paper Products and Solaris Industrial Chemicals as respondents.

MCA prayed to the Tribunal to declare 'not fit and proper' individuals to carry the workplace of a director or some other workplace-related with the conduct and administration of any agency.

The petition filed by the Ministry before the NCLT mentioned that "Under the reign of Thapar as the chairman of the board of directors of CG Powers and as director of its various group companies, respondent No 3 to 8 and 24 (collectively erstwhile officers), among others, were appointed as directors and/or key managerial personnel and/or officers in the various companies in Avantha Group and CG Group."

It reads, "These appointments were designed with a view to exercise close control over and manipulating the machinery of CG Group so as to enable respondent No 2 to systematically and surreptitiously orchestrate siphoning of funds from CG Group."

CG Power had complete debt of Rs 2,161 crore, out of which a consortium of 14 banks has taken a haircut of Rs 1,100 crore and restructured the remaining. The petition is filed by MP Shah, regional director for the western area on the Ministry of Corporate Affairs.

The petition filed by the Ministry is based on the basic case of the 'Doctrine of Lifting of the Corporate Veil', whereby the NCLT would try to find out the true kind and character of the corporate.

The Tribunal will have to determine the actual beneficiaries of the so-called fraud, to hold them accountable under the provisions of the Companies Act and penalize such officers, if found guilty.

If found guilty, the actual beneficiaries of the fraud would be held accountable and penalized under the provisions of the Companies Act.