An investigation by Hongbao Resources (01131) found that former director Ashok Kumar Sahoo had made a number of suspicious transactions in the Indian thermal power plant business for personal gain

Hongbao Resources (01131) announced that in March 2019, the group completed the acquisition of SKS Power, which owns and operates a 600 MW coal-fired thermal power plant in Chhattisgarh, India. Ashok Kumar Sahoo, the Company's former Executive Director, was responsible, among other things, oversaw, the Group's thermal power plant business in India, and was a director of the Group's Indian subsidiaries, Entwickeln India Energy Private Limited (Entwickeln) and SKS Power Generation (Chhattisgarh) Ltd. (SKSPower).

In April 2020 or so, the Company noted that SKS Power failed to carry out a number of corporate restructurings due to SKS Power's lack of sufficient funds to pay the required stamp duty. In addition, in May 2020 and around, the Company also noted that in April 2020 or so, the SKS power plant was allegedly suspended in March 2020 due to lack of funds and closures in India due to public health events, and resumed operations only in May 2020. The events surprised the company because the Group has invested more than $123 million in SKSPower since March 2019, of which approximately $100 million has been used to complete the acquisition of SKS Power.

In the course of investigating the affairs of SKS Power following the discovery of the above incidents, the Board recently noted that Sahoo and his associates had committed a number of unusual and suspicious transactions without the consent and knowledge of the Company for their personal benefit and benefits, including securities purchase agreements; Shareholders' agreements; and the issuance of new shares.

On 22 August 2019, Entwickeln, which owns 100% of SKS Power as a seller, and Berrio Mauritius Global Limited (Berrio Mauritius, as the buyer) entered into a securities purchase agreement. Berrio Mauritius acquired 1.37 million SKS Power compulsory convertible warrants from Entwickeln for a consideration of INR 75 million.

Subject to the terms and conditions of the mandatory convertible warrants, Berrio Mauritius will own more than 15% of SKS Power at the time of conversion. As at 31 August 2018, SKS Power had been valued at US$521 million by an independent valuer. Based on the valuation, a 15% stake in SKS Power would therefore be $78.15 million. The compulsory convertible warrants acquisition by Berrio Mauritius is calculated on a basis of less than gross value.

In addition, according to the Group's findings, the $100,000 amount was illegally transferred by the Group to Berrio Mauritius to pay the consideration under the securities purchase agreement.

On 22 August 2019, SKS Power, Entwickeln and Berrio Mauritius entered into a shareholders' agreement. Under the Shareholders' Agreement, Berrio Mauritius has the power to appoint 3 of the nine SKS Power directors who cannot be removed by SKS Power or any of its other shareholders; Berrio Mauritius has a pre-emptive right to purchase any shares held by the Transfer Promoter and/or any shareholder of SKSPower; certain reservation matters in excess of INR 1 million in a financial year (including capital expenditures made in a single transaction or series of transactions) may not be carried out by SKSPower without the prior written consent of Berrio Mauritius.

Although the Group is a 100% shareholder in SKS Power, entering into a shareholders' agreement would effectively allow Berrio Mauritius to take control of SKS Power.

On March 3, 2020, SKS Power issued and allotted 57,537 new shares, representing approximately 0.1% of its entire shareholding, to Berrio Mauritius at a total subscription price of US$19,000.

Pursuant to the Group's findings up to the date of this announcement, Berrio Mauritius is a company incorporated in the Republic of Maurijos and is 100% owned by Berrio Global Limited; Berrio Global Limited is a company incorporated in the British Virgin Islands and is 100% owned by Mr. Sahoo and his wife, Ms Nisha Sahu.

The announcement said that on 31 July 2020, the Company's subsidiaries and Agritrade PowerHoldingsPte.Limited (APH, as the Petitioner), the holding company of Entrwickeln and SKSPower, filed a petition against the Respondents, including certain directors and managing employees of Sahoo, Berrio Mauritius and SKS Power, before the Mumbai Judge of the National Corporate Law Tribunal in Mumbai, India, to seek an order and/or declaration (including):

(i) removed certain Respondents (including Mr. Sahoo) from their board and management positions at SKS Power;

(ii) the Securities Purchase Agreement and the compulsory convertible warrants transferred thereunder to Berrio Mauritius are illegal, void and void, have no legal effect or consequence, and are not binding on APH and/or SKSPower, and the mandatory convertible warrants shall be allotted to APH;

(iii) the Shareholders' Agreement and the actions taken thereunder are unlawful, void and void, without any legal effect or consequence, and are not binding on APH and/or SKSPower;

(iv) Certain resolutions of the SKSPower Board and shareholders are unlawful, void and void without consequence and are not binding on APH and/or SKSPower and will be repealed;

(v) the issuance of new shares is unlawful and the revocation/cancellation and suspension of the issuance of new shares and any other action taken in connection therewith;

(vi) In the event that a compulsory convertible certificate of convertible convertible into equity shares in SKSPower with Berrio Mauritius as the beneficiary, Berrio Mauritius shall not have any voting rights or any other rights derived from the said equity shares; and

(vii) directed certain Respondents (including Mr. Sahoo) to disclose in oath the manner in which the funds injected by APH Group companies had been used, as well as the conduct of forensic audits of SKS Power's affairs and accounts by well-known agents, and instructed certain Respondents (including Mr Sahoo) to reimburse the amounts found to have been misappropriated to Berrio Mauritius.

In addition, the Company has established a Board Committee comprising Yew ChuSern (Executive Director), Sim Mingqing (Executive Director) and Chew Shee Koon, Malcolm (Non-Executive Director) to investigate matters relating to securities purchase agreements, shareholders' agreements, issue of shares and other transactions of the Group's subsidiaries in India and the operation of SKS power plants.

Following the filing of the APH petition, the Group received a petition by Berrio Mauritius (as the Petitioner) against the Respondents, including the Company and its various subsidiaries, including APH, Entwickeln and SKS Power, in the High Court of Mumbai, India (the Berrio Petition). As Berrio Mauritius claims, it filed a Berrio petition to protect and retain its management of the SKSPower Board (which the group strongly denies) pending the resolution of the dispute through the Mumbai arbitration process.

The Company is reviewing the Group's internal control system and will implement measures to strengthen its internal control function.

The group is seeking legal advice in connection with the Berrio petition. The suspension of trading in the Company's shares continued.