CG Power may refuse to repay unapproved loans of its units

Mumbai: The management of CG Power and Industrial Solutions, battling an accounting scandal and charges of fund diversion, is said to be on a possible collision course with lenders involving the likely repudiation of loans worth hundreds of crores of rupees.

These were given to subsidiaries without the authorisation of company directors, two persons aware of the board’s thinking told ET. However, an official spokesman denied this.

A web of companies, including some promoter-owned firms, had been given guarantees by the listed entity. “Banks have lent to subsidiaries of CG Power without due process — these funds were later used to pay off loans of other subsidiary companies,” said one of the persons. “The board of CG Power has now made up its mind to deny repayment of these loans to lenders.”

Top officials close to CG Power said that banks were also to blame as they failed to undertake due diligence before disbursing loans. The board is also looking to take legal action against the lenders as they didn’t have the requisite authorisation to grant these loans, said the persons.


“This is completely baseless and untrue,” a company spokesman told ET in an email. “No decision has been taken on such lines. CG Power is closely working with all the stakeholders including the lenders to arrive at a best possible solution.”

Corporate governance violations surfaced at CG Power in the past month, with a board-led investigation revealing wrongdoing by current and former employees, leading to the dismissal of chairman Gautam Thapar. The probe had alleged that these employees understated liabilities and advances made to related parties while pledging the company’s assets without permission. It said advances to related and unrelated parties were understated by Rs 4,796 crore and total liabilities understated by Rs 2,661 crore. The company fired Thapar on August 29.

CG Power’s transactions with related and unrelated parties were not disclosed in the financial statements of previous years and these were offset against undisclosed borrowings.

“Lenders have provided loans based on documents signed by the power of attorney,” said one of the persons. “If guarantee is given, which is signed by authorised party but not approved by the board, banks can go to court to settle the matter.”

Audit firm KK Mankeshwar said in its report that two advances of Rs 198 crore were inappropriately netted off against the money payable to Blue Garden Estates Pvt Ltd. Assets and liabilities were not disclosed in the financial statements for March 2017. Parent Avantha Holding Ltd had also issued a corporate guarantee on behalf of CG Power in favour of Blue Garden, providing assurances on the repayment of proceeds received by the company in case of default.

ET had earlier reported that banks were reluctant to extend working capital loans of up to Rs 200 crore to CG Power amid investigations by government agencies over financial wrongdoing. CG Power has debt of Rs 4,000 crore.


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