Crisis-ridden PTC India Financial Services (PFS) has conveyed to market regulator SEBI that the governance related allegations made by the three independent directors (IDs), who resigned recently, are “unfounded”.
Not so ‘independent’
This is reflected in the PFS’ point-wise reply sent to SEBI last week, sources said. Not only has PFS in its response to SEBI refuted the allegations, the company has made counter accusations that the three IDs were interfering in the day-to-day management of this systemically important non-banking finance company(NBFC).
It maybe recalled that the company’s three independent directors — Kamlesh Shivji Vikamsey, Thomas Mathew and Santosh B. Nayar - had resigned on January 19 citing several corporate governance-related issues. They had alleged that certain actions of the Chairman of the Board and Managing Director of the company are “ultra vires” and in violation of the provision of the Companies Act 2013.
Key allegation
Besides the independent directors also flagged the ₹125 crore bridge loan given to NSL Nagapatinam Power and Infratech Pvt Ltd. This account got reported to the RBI in August 2021 as “suspected fraud” after the forensic report was available with PFS in the year 2018.
After the three independent directors resigned, when PFS sought SEBI approval to conduct a Board meeting to appoint new IDs, the market regulator directed the company to first address the issues raised by the resigning IDs and ex-Chairman before holding board meetings.
SEBI directed PFS to file an action taken report (ATR) within four weeks on corporate governance matters and issues raised by resigning directors. This has now been done by PFS, it is learnt.
Ball in regulator’s court
It remains to be seen how the regulators — SEBI and RBI—will act on the independent directors’ resigning en masse on governance issues. This is probably the first instance in the history of Corporate India when independent directors have resigned en masse citing governance issues.
The IDs had requested legal assistance — a fundamental right under Companies Act —and the company had not provided this, it was pointed out. Corporate observers’wondered as to how a company can refuse to provide legal assistance to independent directors in violation of the company law. It remains to be seen how the Corporate Affairs Ministry (MCA)— which administers the Companies Act— will view this, they added.
The ball is now clearly in SEBI’s court, especially when this episode has occurred during a time when the market regulator is keen that Independent Directors duly play their critical role in strengthening governance in corporate boards.
May set precedent
Any decision by the regulators to refrain from delving deep into the matter or choosing to remain silent—especially after the independent directors’ had red flagged the issues — could adversely impact corporate governance in the country and set a bad precedent besides forcing IDs in other companies to remain mute spectators and not raise any issues against erring managements, said corporate observers. No independent director in Indian corporate boards will raise issues if the regulators were to keep mum in this case, they said.
PFS was promoted by PTC India and is registered with the RBI as an NBFC. This systemically important non-deposit-taking NBFC has been categorised as Infrastructure Finance Company by the RBI.
On its part, PFS had conveyed to the stock exchanges on January 23 that its MD & CEO (Pawan Singh) had on August 5 last year— on the day of Board meeting when the Ex-Chairman raised corporate governance issues— addressed all the concerns of the ex-Chairman in the same board meeting.