PTC India Financial Services (PFS) has been taking heat for lapses in corporate governance and compliance after three of its independent directors quit last week.
The Securities and Exchange Board of India (SEBI) has pulled up PFS, barring the non-banking financial company (NBFC) from holding a board meeting until it addresses the corporate governance issues and submits a report on action taken within four weeks.
Shares of PFS and parent PTC India have plummeted for three consecutive sessions. But what has caused all this?
The trigger
On January 19, Kamlesh Shivji Vikamsey, Thomas Mathew T and Santosh B Nayar resigned from the post of independent director of PFS on concerns over lapses in governance and compliance. They submitted similarly worded resignations and other supporting documents.
The three directors said that former bureaucrat Rakesh Kacker had also previously written to the management highlighting lapses in corporate governance before his tenure ended at PFS in end-December. Kacker was also on the board of the parent entity PTC; he resigned on January 21.
Why did the directors resign?
The independent directors have made six allegations--one pertains to the appointment of another director, while the other five pertain to operations and corporate governance issues.
- • PFS’s managing director and chief executive officer Pawan Singh did not allow “Mr Ratnesh” to join and function as director finance and chief financial officer despite board approvals for the appointment. The independent directors said that the company was in violation of the Companies Act, 2013 as Singh took the decision “unilaterally” and did seek board approval, nor gave an explanation.
- • The directors also alleged that the company did not disclose the forensic audit report (FAR) relating to a loan account of NSL Nagapatnam Power and Infratech for two years between November 2018 and December 2020. Due to ongoing stress in the project, insolvency proceedings were initiated in the project for which bridge loan was taken by NSL and the promoter company of NSL made a one-time settlement (OTS) offer to the company in March 2020. But when the FAR came to light, PFS’s audit committee recommended that the matter should be reported to Reserve Bank of India (RBI) as suspected fraud and the board wanted to defer the decision on OTS till RBI responded.
- • The management took no action on corporate governance issues highlighted by former PTC head Deepak Amitabh in a board meeting held on August 5, 2021.
- • The management made changes in conditions of loans, without prior approval of the board. The independent directors cited two examples—both pertaining to highway projects—and expressed concerns that there may be more such instances.
- • The management blatantly ignored communications from the independent directors where they called for-- documentation pertaining to the appointment and joining of Ratnesh, request for professional help of legal counsel, meeting of nomination and remuneration committee to fill up the vacancy of a lady independent director, and action needed after the withdrawal of nomination of Renu Narang from the board of the company that rendered the nomination and remuneration committee dysfunctional.
- • The management did not provide the independent directors with the information sought by them.
What has the management done in response?
The management has refuted the allegations, questioned the intent of the independent directors and formed an internal committee for investigation. They have sent a status report to the RBI, SEBI and the two stock exchanges.
The management has started the process of appointing new independent directors and has sought SEBI approval to hold a board meeting in their absence.
The management also said that while the former chairman Deepak Amitabh raised concerns over the corporate governance practices of the company in a board meeting on August 5, 2021, the board provided a clean corporate governance report on the same day for the financial year ending March 31, 2021. They also pointed out that on September 24, 2021 the ex-chairman addressed the shareholders of the company at the 15th Annual General Meeting, appreciating the firm and mentioning no concern related to corporate governance.
What regulatory action has been taken?
SEBI has barred PFS from holding a board meeting until the company submits an action report within four weeks. This effectively means that the company is unlikely to get an exemption for a board meeting for the next one month.
The RBI and even the ministry of corporate affairs are soon expected to ask the company for an explanation.
What next?
All eyes would be on the action report PFS has to submit to SEBI in the next four weeks.
As a listed NBFC, the company falls under the purview of both RBI and SEBI. Authorities could direct the company to conduct an independent audit of the corporate governance issues.
The management has been in talks with key investors to assuage their concerns. They may have to take some more action soon to allay their concerns as the selloff in the shares of PFS and parent PTC continues.
PTC, formerly known as Power Trading Corporation of India, holds a 65 percent stake in PFS. State run-power sector companies NTPC, Power Grid Corporation of India, Power Finance Corporation and NHPC together own a 16.2 percent stake in PTC.
Sequence of events
August 5, 2021: Former PTC Chairman Deepak Amitabh raises concerns over the corporate governance practices of PFS in a board meeting.
October 13, 2021: Amitabh resigns from the post of chairman and managing director with effect from November 5, citing personal reason. He joined the company in 2003 and held the top position since 2012.
November 6, 2021: Rajib Kumar Mishra, who was director of marketing at PTC, was given the additional charge of CMD’s position till a regular appointment was done.
January 14, 2022: PFS directors were sent a notice informing them of a board meeting to be held on January 22. The independent directors claimed that the board meeting was invalid as the notice was not served to all the directors of the board and the agenda did not include the corporate governance issues raised by them earlier.
January 19, 2022: Vikamsey, Mathew and Nayar resign from the board of PFS, citing lapses in corporate governance.
January 20, 2022: PTC and PFS refute allegations made by the independent directors who resigned.
January 21, 2022: PTC and PFS hold press meet to announce they have formed an internal committee for investigation. They question the intent of the independent directors.
January 22, 2022: PFS has to call off the board meeting after SEBI pulls them up, barring them from holding a press meet until they submit an action report in four weeks.
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