The Registrar of Companies (ROC) has found PTC India Financial Services Ltd and its Managing Director and Chief Executive Officer Pawan Singh in violation of The Companies Act, 2013 and penalised both entities in three separate adjudication orders.
The Ministry of Corporate Affairs had ordered an inquiry based on accusations made by three independent directors. On January 19, 2022, Kamlesh Shivji Vikamsey, Thomas Mathew T and Santosh B Nayar resigned as independent directors of PFS on concerns over lapses in governance and compliance. They submitted similarly-worded resignation letters and other supporting documents.
In order 1, ROC states that there was violation under Section 178 of the The Companies Act, 2013, as the Nomination & Remuneration Committee (NRC) remained unconstituted as highlighted by the independent directors. In this matter, ROC has imposed a penalty of Rs 5,00,000 on PFS and another Rs 1,00,000 on Pawan Singh.
Orders 2 and 3 pertain to violation under Section 149 of The Companies Act, 2013. In both instances, separate penalties of Rs 70,000 each has been imposed on PFS and Pawan Singh.
The orders were passed by ROC of Delhi and Haryana soon after the company sent Singh on leave last week. Both Singh and PFS can appeal against the three order with the Regional Director of Ministry of Corporate Affairs within stipulated period.
The Context
PFS has been mired in controversies since its independent directors resigned in January 2022. ROC, Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) are investigating the company and the management. The independent directors had stated that there were instances of lapses in corporate governance, bypassing the board in certain decisions and changing the terms and conditions of loans.
A total six independent directors resigned from the board of PFS in 2022 under the management of Singh and Rajib Kumar Mishra, Chairman and Managing Director of the parent company PTC India.
The non-banking finance company of PTC India, sent Pawan Singh on leave last week in line with a directive from the RBI.
Moneycontrol had exclusively reported that on May 8, SEBI issued a notice to Singh and Mishra, stating that given their roles in the board and management, they were at the “steering wheel” in PFS and therefore, responsible for corporate governance failure.
Dysfunctional NRC
While resigning in January 2022, the independent directors highlighted that the NRC remained dysfunctional and the company or the management had not taken suitable action. NRC supports the board in handling matters relating to appointment, terms of employment, remuneration, etc for senior management.
Upon investigation, ROC found that on October 14, 2021, Pravin Tripathi ceased to be an independent director of the company.
The company had three months to fill the role of a woman independent director. The promoter company PTC withdrew its nomination of Renu Narang without a board meeting. With this, the NRC was left with only two directors– Santosh B Nayar and Thomas Mathew T– rendering it dysfunctional.
The order said that the erstwhile IDs believe that a palpable reason, which led to this chain of events was aimed at denying Rakesh Kacker, also an erstwhile independent director, an extension in his term beyond December 31, 2021. “Without, going into such reasons, the facts and circumstances in itself clearly demonstrate that the NRC was made dysfunctional and the company and the MD&CEO at its helm did not take swift action to restore normalcy by reconstituting the NRC,” the order said.
ROC had issues show-cause notice on the matter to the company and the then officers– MD and CEO Singh, Chief Financial Officer Sanjay Rustagi, and Company Secretary Vishal Goyal. ROC concluded that only the company and the MD and CEO Singh were in violation of norms and ordered a penalty of Rs 5,00,000 and Rs 1,00,000, respectively.
Duty towards independent directors
The independent directors had said that the board was denied appropriate information and that due processes were not being followed. They had cited how Singh unilaterally did not allow Ratnesh, who was appointed by the board as director finance and chief financial officer in July 2021, to take over the position and function.
In this matter, ROC found the company and Singh in violation of Section 149 of The Companies Act in two accounts. First, all documents, including the background note, relating to the decision of not allowing Ratnesh to join the board were not shared with the independent directors. Second, the company did not facilitate and support the independent directors in getting a legal opinion in the matter of appointment of Ratnesh.
In two separate orders, ROC has imposed a penalty of Rs 70,000 each on both PFS and Pawan Singh.
Shares of PFS closed at Rs 20.10 on BSE on June 27, up 0.65%. Shares of the parent company PTC declined 0.8% to Rs 115.77 on Moneycontrol's exclusive on June 27, that besides Mishra's role in PFS, his appointment at the top job at PTC is also being questioned by SEBI.
PTC is seeking shareholders' approval on June 28, among other things, for appointment of Rajib Kumar Mishra as CMD.
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