Gautam Thapar, the promoter of CG Power and Industrial Solutions Ltd and chairman of the board, may lack the confidence of the stakeholders after fraud allegations, but will he step down? Sources say that it will all boil down to the numbers game and may lead to a boardroom battle. The director board will next meet on August 30 to decide on the financial performance of the crisis-hit company in Q1FY20. Lenders and investors are building pressure on the board to oust Thapar ahead of the crucial meeting.
CG Power’s board members will play a crucial role in the way events unfold in the coming days. It will also show how much clout Thapar retains on the director board. It is the board which appoints the chairman and if Thapar loses the confidence of the board, he may be asked to step down. Thapar was re-appointed as the director of the company in September 2017 for three years and his position as director is up for a renewal only next year. In the meantime, it will be important to track if the board of the company passes a resolution to oust him and calls for shareholders’ approval.
CNBC-TV18 contacted Thapar and many board members, but they did not comment for the story.
According to sources, even if Thapar does not decide to step down, he could be asked by the board to abstain from voting in matters related to related-party transactions (RPTs). There are many RPTs and financial decisions in which Thapar and KN Neelkanth could be asked to give up their voting rights as board members. So whether or not Thapar is out of the board, his wings could surely be clipped, a source added. Thapar is now left with only 8574 shares in the company after some of the key lenders and investors invoked the pledged shares. Key stakeholders in CG Power include Yes Bank, KKR, Bharti (SBM) Holdings, Birla MF, HDFC MF, L&T Finance and Franklin Templeton.
It may be noted that private equity major KKR, which holds 21.63 percent stake, invoked its loan against pledge to Avantha Group and therefore got direct exposure to CG Power. By way of this they have kept the shares in a trust with the agreement to return to the Group when they pay up. KKR retains voting rights the shares have at the moment.
Sources suggest that some of the recent changes on the board were done at the behest of investors and lenders of the company. While the onus of smooth functioning of the board will be on the members in charge of day-to-day operations, it is also the fiduciary duty of the independent directors to act in favour of the interest of the shareholders. A source pointed out, “Votes of the independent directors will be the deciding factor; board will need a quorum of 4/5 members to vote in favour of ousting Gautam Thapar.” Amit Tandon of IIAS said, “Given the magnitude of the restatement and that they stem from ‘related parties,’ supporting Gautam Thapar is unconscionable.”
The board of CG Power comprises eight members with Thapar as the Chairman. MD and CEO KN Neelkant is away from day-to-day operations since May 2019 but retains his board seat. Narayan K Seshadri is the non-executive independent director who joined the board this year and is heading the Operations Committee and also has the onus of keeping the smooth functioning of the company despite the crisis situation. Sudhir Mathur was made executive director and is involved in the daily functioning of the company since May. Other non-executive independent directors are Jitender Balakrishnan, Omkar Goswami, Ramni Nirula and Ashish Guha.
The effort of stakeholders is toward finding an amicable solution to avoid any disruption at the company, as the interests of many stakeholders are linked to the revival of CG Power, a source with direct involvement in the matter told CNBC-TV18. With the growing prominence of governance standards in India, proxy advisory firm IIAS, in a report, drew comparison between the events at Fortis and CG Power. The report emphasised that “the buck stops with the board.”
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Most expect Thapar to succumb to pressure and step down or go on an interim leave while the forensic investigation is being conducted.
The stakeholders’ demand for his ouster is based on the fact that Thapar is the common link between all the related parties of Avantha Group amongst which fraudulent transactions have been detected. Sources suggest that lenders have asked for his removal to provide any further funding for CG Power’s operations. The management, in a concall, said it is “looking to raise Rs 500 crore as fresh equity to bridge funding gap.” Another source pointed out that the “revival and smooth operation of the company is linked to the management changes”.