CVC writes to government defending PNB Executive Director RK Yaduvanshi in Bhushan Steel case

The Central Vigilance Commission (CVC) has written a letter to the Ministry of Corporate Affairs (MCA) seeking a review of a complaint filed by the Serious Fraud Investigation Office (SFIO) against a Punjab National Bank (PNB) official in connection with the Bhushan Steel default case.

In July 2019, the SFIO had charged PNB Executive Director RK Yaduvanshi, stating that he did not raise valid concerns about irregularities in the company despite being the bank’s nominee-director on the board of Bhushan Steel.

These irregularities resulted in manipulation of stock in transit, leading to adjustments in the garb of IndAS, the SFIO had said. IndAS refers to the new accounting standards that came into effect from April 1, 2015.

Yaduvanshi’s defence

But Yaduvanshi had contested these allegations saying the financials of the company are audited by statutory auditors and the agenda is given to the Board after management presentation.

The executive director had also cited an MCA circular, which said there is no liability/responsibility on part-time directors nominated by the government on allegations raised by the SFIO, according to a document seen by Moneycontrol.

However, the MCA issued this circular in March this year and the action against Yaduvanshi was initiated in August last year. Even sessions court had taken cognizance of the SFIO chargesheet.

The CVC, in its letter dated June 30, had said that “gross injustice has been done to this officer, which is clear from the circular dated 29.11.2019 by IBA stating that non-executive directors are not involved in day-to-day operations of the company and are not expected (to know) about the detailed activities of the company”.

Citing these reasons, the CVC has asked the government to review the complaint filed against the PNB officer.

Moneycontrol has seen a copy of the letter.

Unusual move

This development is significant since there are not too many instances of the CVC questioning SFIO charges.

Bhushan Steel, one of the largest defaulters in the Indian banking sector, was on the first list of cases suggested by the Reserve Bank of India (RBI) for insolvency and bankruptcy proceedings.

According to the Bhushan Steel annual report, SBI and PNB recommended AK Deb and Rajesh Yaduvanshi, respectively, as their nominee-directors on the board of Bhushan Steel, while Vipin Anand was LIC’s nominee to the board.

The SFIO chargesheet named around 13 bank officials who were part of the Joint Lenders Forum of Bhushan Steel Limited. The RBI also appoints a nominee director on bank boards for enhanced corporate governance, especially in those banks under its Prompt and Corrective Action watch.

A source told Moneycontrol: “The Yaduvanshi case could be a precedent for taking action against the nominee director, which the regulator does not want."

Tata Steel’s wholly owned subsidiary Bamnipal Steel Ltd (BNPL) has completed its acquisition of Bhushan Steel, marking the resolution of the first case under the Insolvency and Bankruptcy Code (IBC), 2016.

The fallout: risk aversion

The role of government/RBI nominees on bank boards has come under debate of late following a series of financial irregularities and bank frauds. There have been allegations that board members who are supposed to identify and warn investors about financial frauds at the early stage are failing in their duties.

However, a series of back-to-back investigations about various corporate loan deals involving bank officials have made bankers risk-averse. The commercial decisions taken by banks have proven wrong at later stages, such as in the Kingfisher-Vijay Mallya case, raising questions on the processes followed by banks. Such investigations have arguably slowed down decision making.

A recent meeting of the prime minister with bankers, on July 30, also discussed the actions of investigative agencies against bankers.

However, the investigation agencies feel that bankers are rigid in terms of registering complaints against companies that have siphoned money. A source in one such agency told Moneycontrol: “In the recent Dewan Housing Finance Limited case, the Enforcement Directorate found many discrepancies in loans but bankers did not come out and register a complaint against DHFL.”