The market regulator had issued a show-cause notice in May to Rajib Kumar Mishra, who heads PTC India (PTC) and is non-executive chairman of subsidiary PTC India Financial Services (PFS), for failing in his “prime responsibility” of letting the board function effectively and in discharging his duties.
The Securities and Exchange Board of India issued the notice in the matter of alleged corporate governance issues at PFS including bypassing the board in certain decisions and changing the terms and conditions of loans.
Moneycontrol has a copy of the 70-page SEBI show-cause notice to Mishra and PFS MD & CEO Pawan Singh dated May 8.
Under scanner
Mishra’s appointment as chairman and managing director of PTC comes up for shareholder approval on June 28 even as SEBI found that he “consistently thwarted the efforts of IDs (independent directors) to function in an independent and responsible manner.”
PFS, the non-banking financial services arm of PTC, has been under the scanner since January 19, 2022, when three independent directors (IDs) resigned, citing concerns over corporate governance and compliance. Subsequently, other directors also resigned.
“Frequent resignations of IDs from PFS and PTC alleging IDs being treated as impediments speaks a lot on the way the chairman has been conducting the board meetings… He did not question the management on not implementing the board decisions in spite of the same being brought to his notice,” SEBI said in the show-cause notice.
Six IDs resigned from the board of PFS in 2022 under the management of Mishra and Singh.
“Mr Rajib Kumar Mishra thus did not work in the interest of the shareholders, not followed (sic) the best corporate governance practices and did not discharge his duties as a board of director effectively,” SEBI said.
SEBI said it found Mishra and Singh, given their roles in the board and management, at the “steering wheel” in PFS and therefore, responsible for corporate governance failure.
The regulator had asked Mishra and Singh to submit their responses within 21 days, which both have done, according to people aware of the developments. This could not be separately confirmed with them.
Detailed queries sent to Mishra, PTC and SEBI remained unanswered at the time of publishing this article. Mishra did not respond to calls and messages seeking comment.
Earlier this week, Singh went on leave, in line with a directive from the Reserve Bank of India. Recently appointed director (finance) and chief financial officer Mahendra Lodha is overseeing the company’s affairs as it looks for a replacement for the top job.
PTC, which was set up in 1999 as a government initiated public-private partnership, is partially owned by state run-power companies – NTPC, Power Grid Corporation of India, Power Finance Corporation of India, and NHPC each owns a 4.05 percent stake. Life Insurance Corporation owns 5.96 percent and Damodar Valley Corporation owns 3.38 percent in PTC.
Appointment amid corporate governance lapses
Proxy advisory firm Institutional Investor Advisory Services (IiAS) has advised shareholders to vote against the resolution to redesignate and appoint Mishra as the CMD from March 29, 2023, to February 28, 2025, and fix his remuneration.
Mishra, who was director of marketing and business development at PTC, took over as acting chairman in November 2021 after Deepak Amitabh quit. He was made CMD in March this year, despite facing regulatory issues.
The notice for the extraordinary general meeting (EGM) of PTC was issued after SEBI sent the show-cause notice to Mishra. Yet, the EGM agenda shared with investors does not disclose this. However, it includes a clause that will allow Mishra to be on the board as a director even if the resolution for his appointment as CMD is rejected.
“Note that in case of non-approval of this proposal, he (Mishra) shall continue to act as whole-time Director of the Company on such per terms and conditions including tenure as already approved by the members of the Company at their Annual General Meeting held on 22nd September, 2020,” the company said in the notice to shareholders.
"We have anyway advised shareholders to vote against Mr Mishra's appointment. But it's wrong that the company has hidden this line about him retaining a seat on board even if the resolution confirming CMD's position is not approved in the brief profile and not mentioned in the resolution. In any case he cannot do that if he has taken a new position, he cannot hold the old position," said JN Gupta, who is the Founder and Managing Director of Stakeholders Empowerment Services (SES).
Questions have also been raised about the validity of the board approval for Mishra’s reappointment.
“PTC requires six independent directors, but at the time of voting for the CMD’s appointment, four positions were vacant,” a person aware of the matter said.
How it started
On January 19, 2022, Kamlesh Shivji Vikamsey, Thomas Mathew T and Santosh B Nayar resigned as IDs of PFS, expressing concerns over governance and compliance lapses. They submitted similarly-worded resignation letters and other supporting documents.
Following this, former bureaucrat Rakesh Kacker resigned as an independent director at parent company PTC. Kacker was also an independent director at PFS until the end of December 2022.
Mishra and Singh denied the allegations at that time, a stand they have maintained. The PFS management filed an ‘Action Taken Report’ on February 8, 2022. But SEBI was not satisfied with the actions taken and barred PFS from holding board meetings until it addressed the corporate governance issues.
In March 2022, PFS appointed four independent directors on the basis of suggestions made by PTC to fill slots that had been lying vacant for more than two months and ensure the smooth functioning of the board.
In April 2022, PFS appointed CNK & Associates to conduct a forensic audit of the company. The CNK report highlighted issues with practices at PFS and raised concerns over the “possible evergreening” of certain accounts.
The report said the company did not give it crucial information needed for the investigation. After the report was submitted, PFS sent a detailed disclosure to the stock exchanges on November 9, 2022, refuting most of the observations.
A second round of resignations followed soon after CNK submitted the report in November-December 2022. Three independent directors ― Jayant Purushottam Gokhale, Devendra Swaroop Saksena and Sushma Nath – stepped down.
How it’s going
PFS falls under the purview of the RBI and SEBI and both, along with the Registrar of Companies, are looking more closely into matters of corporate governance at PFS.
In January, Moneycontrol exclusively reported that the RBI tightened its grip on the PFS management and its parent company. The central bank sent a show-cause notice to Singh on January 6, seeking his removal from the post of MD and CEO.
“Reserve Bank is of the considered view that it has become necessary to remove you from office as a director of PFS and consequently from the office of MD & CEO of the company for securing its proper management,” the banking regulator said in the notice, a copy of which is with Moneycontrol.
Incidentally, Singh was reappointed as MD and CEO of PFS in January amid these allegations and after IiAS advised shareholders to vote against the appointment.
In an interview to Moneycontrol in January after his appointment, Singh said the corporate governance controversy was behind it and the company was looking to scale up business in FY24 after it was unable to hold board meetings on time and take decisions in FY23.
Separately, SEBI issued the show-cause notice to Singh and Mishra in May.
The allegations
The IDs had expressed deep displeasure about the board being denied appropriate information and due processes not being followed.
They said that Singh unilaterally did not allow “Mr Ratnesh,” who was appointed by the board as director finance and chief financial officer in July 2021, to take over the position and function. As a result, Ratnesh went back to his parent organisation NTPC in December 2021.
The directors alleged that the company did not disclose the forensic report of a loan account related to NSL Nagapatnam Power and Infratech. They said the audit committee’s request for the report and subsequent closure of the matter was “thwarted by the non-cooperative and rather evasive management.”
There were also instances when loan conditions were changed without prior approvals from the board. It was alleged that the communication of IDs was ignored and there was no action taken on corporate governance issues highlighted by former chairman Deepak Amitabh.
PFS sanctioned loans worth Rs 3,854 crore and disbursed Rs 2,253 crore in FY23, according to its presentation to investors. The company’s outstanding credit was at Rs 7,339 at the end of FY23 as against Rs 8,686 crore a year ago.
(The story has been updated with the comment from JN Gupta, the Founder and Managing Director of Stakeholders Empowerment Services (SES).
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