Sebi asks Embassy REIT's manager to suspend its CEO Aravind Maiya; says he displayed "professional incompetence, lack of integrity"

NFRA had passed the order after investigating the case professional conduct of the statutory auditors of Coffee Day Enterprises Ltd (CDEL) during FY19

The market regulator has asked Embassy Office Parks Management Services Pvt Ltd to suspend Aravind Maiya from acting as its Chief Executive Officer (CEO) and appoint an interim CEO with immediate effect.

Embassy Office Parks Management Services is the manager to Embassy REIT.

In an interim order passed on Monday, November 4, the Securities and Exchange Board of India (Sebi) stated that Maiya was debarred for the maximum permissible period by National Financial Reporting Authority (NFRA) for serious lapses, requiring Sebi to take note of the same in the context of Maiya's gross negligence resulting in securities market fraud at Coffee Day Enterprises Ltd (CDEL).

The Sebi order stated, "Mr. Aravind Maiya thoroughly failed the listed company (CDEL), users of its financial statements, standards of his profession as well as public interest, by failing to audit and report a fraud which was evident in all the financial information he was supposed to vet as Engagement Partner of the statutory auditor of the company. By failing to fulfil the fiduciary duties entrusted to him, he has displayed professional incompetence and lack of integrity."

Started with Coffee Day 

NFRA had passed the order after investigating the case professional conduct of the statutory auditors of Coffee Day Enterprises during FY19; the auditors were led by their Engagement Partner, Aravind Maiya. An engagement partner is the person at the audit firm who leads the assignment.

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NFRA had started its investigations following Sebi's investigations into fund diversion from CDEL.

Sebi had passed on order on CDEL on January 24, 2023, in which the regulator noted that Rs. 3,535 crore was  transferred from CDEL’s subsidiaries to its related party, Mysore Amalgamated Coffee Estates Ltd (MACEL), without obtaining the necessary approvals from the Board of Directors or the Audit Committee of CDEL. There were other violations as well, such as the non-disclosure of material subsidiaries leading to glaring audit omissions, failure to maintain adequate internal controls over its finance functions, and failure to carry out adequate due diligence and exercise independent judgment.

All of this resulted in the diversion of CDEL's funds for the benefit of promoter entities. During Sebi's investigations it was revealed that the statutory auditor had a role in facilitating the fraud executed by CDEL.

Taking note of Sebi's observations, NFRA started its investigations and passed an order on August 19, 2024.

The NFRA Order, according to Sebi, "brings out knowing violations of applicable audit norms which failed to flag a massive fraud at a listed company while Mr Aravind Maiya was in a special position to discern given his professional assignment and domain knowledge."

Sebi's interim order passed by whole-time member Ashwani Bhatia added, "The Order also leads to a reasonable inference that Mr. Aravind Maiya failed to act in public interest. Instead, he acted in a manner which harmed ordinary investors and shareholders in the securities market. The NFRA Order raises sufficient doubt regarding Mr. Aravind Maiya’s competence, ethical behaviour and reputation to warrant disqualification under Clause 3 of Schedule II of the Intermediaries Regulations, at least till his name is cleared at an appellate forum, by way of overturning or stay of the NFRA Order."

Sebi's concerns on Embassy REIT's manager

The market regulator's latest order raises concerns around Embassy REIT's manager, Embassy Office Parks Management Services' conduct.

The November 4 order noted that Sebi had communicated several times with the REIT's Manager that Maiya was ineligible to continue in his post. But, the REIT's Manager refused to replace him.

As the Sebi order notes, "It is a matter of concern that irrespective of e-mails, meetings and a specific instruction in this regard, the Manager has tried all means to retain Mr. Aravind Maiya as CEO".