CG Power and Industrial Solutions Limited a company engaged in the business of manufacturing power and distribution transformers, suspected misrepresentation of the finances during August 2019. During that period the operations committee of the company reported to the Board transactions that were not visible on the liability side of the company’s balance sheet.These transactions were suspected to have potential implications on the financial position of the Company.
CG Power’s board said the company has discovered “significant accounting irregularities", including suspect transactions that have led to understatement of the company’s liabilities and advances to related and unrelated parties by hundreds of crores of rupees. Some assets were also purportedly used as collateral and the money from the loans was siphoned off by “identified company personnel".(Livemint.com)
To further examine these irregular transactions, the Board of Directors of the Company resolved to carry out an independent audit through a LawFirmi.e. Vaish Associates. The Law Firmalong with Deloitte conducted the investigation. According to the report of the law firm, prima facie evidence pointed out that themoney was diverted and the Non-Executive Chairman has swindled, Rs. 3000 crores from the Company. Additionally various other unauthorised and undisclosed transactions of the company were also brought to the notice of the Board of Directors of the Company
The Risk and Audit committee along with the Board noted that advances to related and unrelated parties of the company and the group were potentially understated. The amount involved regarding advances to related and unrelated parties was huge. Section 188 read with read with Rule 15 (3) (a) of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for the prior approval of the shareholders, in case the amount of related party transaction exceeds the threshold limit.
In this case, it can be suspected that either approval for such related parties transactions was not accorded for, or the approval taken from the shareholders for a misleading amount.
Based on the findings of the report, it was established that the financial results of the previous quarters for the year ended March 2019, 2018 and 2017 could have been impacted as a consequence of the adjustments.
Subsequently the Non-Executive Chairman and CFO and were sacked due to their acts of misrepresentation of the funds of the Company. The decision was in the interest of the Company and its stakeholders.
Schedule IV of the Companies Act, 2013 provides for the roles and functions of the Independent Directors. One such function of the Independent Director is to satisfy themselves on the integrity of financial information. In light of the above case study, it is advised that Independent Directors should carefully scrutinise all board-related documents and should raise their concerns and seek appropriate clarification, in case they suspect any false or misleading documents or misrepresentation of funds of the company.
Your password has been successfully updated! Please login with your new password
The link is unavailable for your login. Please empanel with the ID Databank to access this feature. For more information, email firstname.lastname@example.org or call 1-800-102-3145.