PTC India Financial Services' director Rajib Kumar Mishra, who is also the CMD of PTC India, and PFS' former MD and CEO Pawan Singh have been fined Rs 10 lakh and Rs 25 lakh respectively by the market regulator following its investigation into corporate governance lapses.
Besides slapping a penalty on the two, Sebi has also restrained Singh and Mishra from holding any Board or key managerial personnel position in any listed company or any registered intermediary or associating themselves with any listed entity which intends to raise money from the public. Singh was forced to go on leave in June 2023, following a Reserve Bank of India (RBI) directive, until his retirement. Mishra is still the the non-executive chairman of PFS and the Chairman and Managing Director of the parent company PTC India. The order effectively means he will have to step down from these positions.
PTC India owns 64.99% shares in PFS. PTC, in turn, is owned by Public Sector Undertakings (PSUs) –NTPC Ltd, NHPC Ltd, Power Grid Corporation of India Ltd and Power Finance Corporation Ltd– each holding 4.05% in the company. On June 29, 2023, Mishra's appointment at the top job in PTC India was backed by PSU promoters despite regulatory scrutiny.
The non-banking financial subsidiary of PTC India has been under a regulatory scanner for over two years since three independent directors resigned from the company’s board flagging concerns over corporate governance issues on January 19, 2022.
The order, issued by the Securities and Exchange Board of India (Sebi) on June 12, said that Singh had "grossly misused" his position as MD and CEO of PFS and that Mishra had been "acting as a willing accomplice". In the order, Sebi WTM Ashwani Bhatia said, "While issuing the directions, I have considered that the present matter has not brought out any detail pointing to manipulation of the market or its abuse."
The market regulator started its investigations following the resignations of three independent directors of PFS and the resignation of one independent director of PTC India between January 19-21, 2022, and the regulator looked into PFS' operations between April 1, 2021, and December 31, 2022.
Besides Sebi, the Reserve Bank of India (RBI) is also looking at the irregularities in PFS. Separately, in June 2023, the Registrar of Companies (ROC) found both PFS and Singh in violation of The Companies Act, 2013 and penalised both entities in three separate adjudication orders.
Moneycontrol has been reporting on this matter extensively and exclusively for the past two years on the Sebi probe into corporate governance and in the appointment of the chairman, RBI flagging discrepancies in loans, and how the flip-flops in decisions relating to key appointments.
Personal fiefdom?
Singh was found to have disregarded the Board's recommendations, kept a critical position vacant and informed the Board about a forensic audit done on a bad loan after the passing of two full years.
The order stated that Singh had "grossly misused his position as the MD and CEO of PFS to prevent Mr. Ratnesh from joining as WTD (Finance) and CFO, which was approved by the Board of PFS. The MD & CEO in a company, though sitting at a high position within the management hierarchy, is duty bound to follow the decisions of the Board of his company and cannot exercise his power unilaterally in an unfettered manner. However, in this case, the MD & CEO employed all the tricks to defeat the decision of PFS Board to appoint Mr. Ratnesh, thereby keeping a critical vacancy in the Company unfilled."
In their letter on January 19, 2022, the IDs had pointed out, among other issues, how Singh and Mishra had blocked the onboarding of Ratnesh, an NTPC executive who was appointed by the board as Director (Finance) and CFO in July 2021. Ratnesh went back to his parent organisation, NTPC, in December 2021.
The market regulator has pulled up both Singh and Mishra for undermining the role played by independent directors. While Singh was described as “confrontational” and engaged in “one-upmanship”, Mishra was termed a “willing accomplice” who ignored issues raised by the IDs and did not set things right. SEBI said that it had a telling impact on the performance of PFS. During the period FY19 to FY23, the assets of PFS fell from Rs.13,193 crore to Rs.7,634 crore.
Delayed disclosures of key information
Sebi's investigations also revealed how Singh had held back crucial financial information from the Board and the committee of Independent Directors (CoID).
According to the order, Singh did not disclose to the Board for two years the Forensic Audit Report (FAR)-2018 regarding the loan extended to Nagapatnam Power and Infratech Pvt Ltd (NSL). PFS had approved a bridge loan of Rs 125 crore to NSL to set up a coal-based power project in January 2014, and the amount was disbursed in March 2014. NSL defaulted on the very first payment as its post-dated cheques were dishonoured. The account then became irregular and was declared a non-performing asset (NPA) in 2017.
PFS had commissioned an FAR on this loan in 2018. But it was presented to the Board only in December 2020.
The Board then recommended that the NSL be reported to RBI as suspected fraud, but Singh delayed implementing this suggestion too. As the Sebi order noted, these actions showed that Singh "was running the Company as a private concern where his writ run large, even if it was to the detriment of the Company".
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