Avantha Group Money Laundering Case

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Once again India is witnessing a step taken for the prevention of money laundering by business tycoons. On 4 August 2021, ED (Enforcement Directorate) arrested Mr. Gautam Thapar, former chairman of CG Power and Industrial Solutions Limited and promoter of Avantha Group. 

Gautam Thapar Avantha Group Money Laundering Case

Before you start thinking that Mr. Thapar has a negative personality, let me tell you that it was under his leadership that the sick subsidiary of Avantha Group, Ballarpur Industries Limited (BILT), yielded profit within a year. He was able to make the business unit profitable even without having specialized knowledge or prior experience. Now, isn't this strange that such a capable man landed up in jail?

Enforcement Directorate Tweet about gautam thapar avantha group money laundering case

To understand the entire story let us travel back to the past!

Mr. Thapar, after facing employment issues and his U.S. visa being at the verge of expiry returned to India. Although he studied chemical engineering in the U.S., he shouldered the turnaround responsibility of BILT and with his success he got recognition in the business world. 

He also became the chairman of Crompton Greaves on 22 July 2004. Earlier then the company was largely dealing in consumer goods and industrial items. Gradually, due to heavy investments in acquisitions from 2006-2010 (includes the Great Recession period) to become an $8 Billion conglomerate in revenue terms by 2015, the division involved in industrial items started bearing loss for which division involved in consumer goods served as a cash cow (cash cow is that division whose product has reached its maturity but yields profit in present).

Now, to get out of this fuss, Mr. Thapar came up with the idea of demerger in 2014. Finally, in the year 2016 Crompton Greaves Limited successfully split into Crompton Greaves Limited (later named CG Power and Industrial Solutions Limited) and Crompton Greaves Consumer Electricals. Adding some drama to this, it was found that Mr. Thapar sold his shareholding of Crompton Greaves Consumer Electricals.

CG Power and Industrial Solutions Limited was still struggling with no cash flow and accumulating debt. Slowly, promoters started pledging their shares. Promoter's default on these pledged shares, which came out to be ₹2,435 crore in aggregation, brought unrest among creditor banks.

In the year 2019, Mr. Thapar was removed from the post of chairman of CG Power and Industrial Solutions Limited in a majority board resolution, due to identified fraudulent grounds.

Allegations against him are:

1. Misuse of funds of the company
2. Misrepresentation of related party transactions
3. Unauthorized loans taken from banks 
4. Fraudulent financial details being presented

Central Bureau of Investigation is currently working upon three cases against him: bribery, Yes Bank matter and money laundering case involving 12 different banks.

What do you think might be the possible reasons for this fraud? Financial pressure on Mr. Thapar? Management’s unrealistic goals? Opportunity to commit fraud? Lack of ethics and low morale? Or something else? Do let us know your thoughts on the same by leaving a comment.

Sources:

  1. https://www.livemint.com/market/mark-to-market/for-cg-power-stock-trouble-started-long-before-it-reported-serious-lapses-1566372469087.html
  2. https://www.thehindubusinessline.com/companies/cg-power-reports-huge-financial-fraud/article29184226.ece
  3. https://energy.economictimes.indiatimes.com/news/power/cg-power-board-sacks-gautam-thapar-as-its-chairman-with-immediate-effect/70888223

 

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