CG Power Case: Securities Appellate Tribunal Directs SEBI To Pass Confirmatory Order Before March 10

The Securities Appellate Tribunal has directed the market regulator to pass a confirmatory order before March 10 in its investigation into executives of CG Power and Industrial Solutions Ltd., including promoter Gautam Thapar, and its holding firm.

A tribunal bench comprising judicial member Tarun Agarwala and technical member CKG Nair allowed the Securities and Board Exchange of India’s appeal. The market regulator had passed an ex-parte ad interim order against Thapar and others in September last year alleging them of indulging in serious misstatement of accounts and diversion of funds, while being at the helm of the fraud-hit power equipment maker.

Based on a preliminary investigation report, the SEBI had barred Thapar and other former officials from accessing, buying, selling or being associated with any listed entity in the capital markets.

Thapar had moved the Securities Appellate Tribunal against the market regulator’s order. The tribunal rejected Thapar’s appeal on Oct. 1, 2019, and had directed SEBI to pass a confirmatory order within four weeks.

The SEBI’s counsel, however, sought a time extension for issuing confirmatory order saying that the underlying documents being relied upon by the regulator were voluminous.

CG Power had informed the exchanges last year that some of its assets were offered as collateral without the authorisation of its board and were used for certain related party transactions. The company had also detected that its assets and liabilities were understated and its employees had entered into unauthorised transactions.

In its order, the market regulator had directed Avantha Holdings, CG Power’s holding company, to retain as much as Rs 1,006 crore—pending receivables to be paid by it to CG Power. To ensure recovery, SEBI restrained Avantha Holdings from disposing, selling or alienating its assets or funds till further orders.

Reasons For Seeking Extension

Kevic Setalvad, counsel appearing for the SEBI, sought time extension on the following grounds:

• Documents relied on the investigation against Thapar and others ran into thousands of pages.
• The market regulator commenced hearing in the matter after SAT’s October order last year and concluded it on Jan. 15, 2020. However, the SEBI sought further information from the parties and seeks to verify documents submitted by CG Power.
• SEBI’s ex parte ad interim order was necessary to protect investors’ interests.

Gautam Thapar And CG Power’s Counter

JJ Bhatt, senior counsel appearing for Gautam Thapar, and Pradeep Sancheti, counsel representing former CG Power executive B Hariharan, opposed the extension because:

• Demat accounts belonging to Thapar and others have been frozen pursuant to the market regulator’s order. Despite an application for modification of the interim order, the SEBI hasn’t passed any order, thereby putting “their lives in misery”.
• CG Power had submitted certain documents directly to the market regulator. Similarly, stock exchanges had provided documents to SEBI based on audits. Thapar and others had no opportunity to check and verify the documents.
• SEBI’s order is broadly worded and requires further classification on applicability. However, no such clarification has been issued by the market regulator.