After Rosen and Schall, a third US-based law firm, Pomerantz LLP, has announced a class action lawsuit against HDFC Bank against alleged “materially false and misleading” statements regarding the Bank's business, operational and compliance policies.
The class action, filed in United States District Court for the Eastern District of New York, is on behalf of a class consisting of all persons other than Defendants who purchased or otherwise, acquired HDFC Bank securities between July 31, 2019, and July 10, 2020, the website of the firm says .
The complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Bank's business, operational and compliance policies. HDFC Bank had inadequate disclosure controls and procedures and internal control over financial reporting, it said.
As a result, the Bank maintained improper lending practices in its vehicle-financing operations and accordingly, earnings generated from the Bank's vehicle-financing operations were unsustainable, the complaint says.
“All the foregoing, once revealed, was foreseeably likely to have a material negative impact on the Bank's financial condition and reputation; and (v) as a result, the Bank's public statements were materially false and misleading at all relevant times,” the complaint said, adding, revenues generated from HDFC Bank's auto and commercial vehicle loans are reported as part of the Bank's Retail Banking segment.
This is the third US law firm filing class action suit against HDFC bank.
The other two- Rosen Law Firm and Schall Law--too have alleged that the bank engaged in misleading statements and failed to inform investors about the bank's improper internal controls on vehicle loans.
The lawsuits are filed in the US District Court Eastern District of New York and names HDFC Bank’s outgoing managing director Aditya Puri, and CEO-designate Sashidhar Jagdishan along with other officials.
While Rosen Law filed the suit on September 14, Schall Law announced the filing on September 8.
"We were unaware of any such development (class-action lawsuit) till we heard about it from the media a little earlier today. We are getting details of it. We’ll examine it and respond to it as appropriate. Prima facie it does look frivolous as we believe we have been transparent in our disclosures," an HDFC Bank's communication executive said in August.
On 17 August, Moneycontrol had reported that Rosen Law had announced an investigation of potential securities claims on behalf of shareholders of HDFC Bank. The firm was also preparing for a class-action suit on behalf of bank’s shareholders, the report had said, adding the investigation was the outcome of accusations that HDFC Bank may have issued materially misleading business information to the investing public.
Rosen Law, on its website, asked investors to provide their details if they had purchased HDFC Bank Limited securities and wanted information about the investigation.
“A representative of The Rosen Law Firm will contact you at no cost to you and provide you detailed information concerning the proposed class-action to recover your losses in HDFC Bank Limited securities,” the firm said on its website.
What is the controversy?
In July, HDFC Bank had sacked at least six employees after an internal investigation found that these employees violated the code of conduct and were found involved in violation of corporate governance practices.
Bank’s internal investigations discovered certain irregularities in the vehicle finance division. Allegedly, some employees of the bank engaged in forced selling of GPS devices to customers bundling these with auto loans.
Employees reportedly insisted the customers to buy the product as a precondition to clear the loan. According to reports, each devices cost Rs 18,000-Rs 19,500 per piece. According to reports, a company called Trackpoint GPS, a Mumbai-based firm, sold these devices to HDFC Bank customers. The company had an alliance with the bank.
Under RBI norms, banks cannot force any customer buy any product. Banks can have tie-ups with suppliers but the sale of products should be optional. Here, the bank allegedly forced the customer to buy the product bundling it with the loan, which is an irregularity. Hence the controversy.
There were allegations that bank’s former auto loan head Ashok Khanna was involved in the GPS issue and subsequently was asked to go. However, the bank clarified that Khanna retired after getting a one-year extension.
In the bank’s AGM, HDFC Bank’s outgoing managing director and CEO, Aditya Puri said bank conducted an internal probe and found personal misconduct issues for which appropriate action has been taken against the concerned employees. Puri said Khanna participated in the enquiry.
Aditya Puri is set to retire on October 26 after spending 26 years in the bank . Sashidhar Jagdishan will succeed him in the bank as the new chief.