PTC India Mismanagement: Sebi Axe Falls On Rajib Mishra, Pawan Singh
Highflying chairman and managing directors barred from having board seats in any company. Singh, the MD, barred for 2 years with Rs 25 lakh penalty, Mishra, chairman, faces six months ban and Rs 10 lakh penalty
The Chairman and Managing Director of PTC India Financial Services (PFS) have been held guilty by market regulator SEBI of severe mismanagement of the company. After several months of the drama following allegations of mismanagement, scam and severe corporate governance lapses at PTC India, a government NBFC and subsidiary of Power Trading Corporation, Sebi has barred chairman Rajib Mishra for six months from the board of any company and imposed a fine of Rs 10 lakhs. Company's former MD Pawan Singh has been fined Rs 25 lakhs and barred from being on the board of any listed company for two years. Sebi's order was issued on June 12.
Sebi said Singh with a long tenure of more than 10 years starting from February 01, 2012 entrenched himself in the affairs of the company in such a manner that he became synonymous with the board of the company. While Singh being the MD and CEO was at the forefront of this endeavor to impede and frustrate the board process, Mishra provided the active support in that process, Sebi said in its recent order.
Six independent directors (IDs) had resigned from PTC India board in 2022 under Mishra and Singh. Issues raised by the audit committee chairman were not recorded accurately in the minutes of the meeting and both failed to objectively look into the concerns raised by resigning IDs, Sebi had alleged in its show cause notice (SCN).
Sebi's recent order said, “ The blatant manner in which Noticee 1 (Singh) functioned to work at cross purposes with the Board and IDs shows that all that he was interested in was asserting his authority within the Company and having his way in crucial matters, at the cost of Company’s interests. Such tendencies, when adopted by the persons occupying highest positions within a company, are bound to have negative repercussions, which is evident from the fact that two sets of IDs resigned in quick succession from the Company.”
Sebi said that the IDs in any listed company act as a watchdog and the management is bound to address the issues raised by them but Singh as MD was repeatedly acting in a confrontational manner with the IDs and was engaging in an act of one-upmanship. "This had a telling impact on the performance of PFS (PTC India Finance Corporation). During the period FY19 to FY23, the assets of PFS fell from Rs.13,193 Crore to Rs.7,634 Crore.
PTC India's holding company is Power trading (having 64.99 percent shares), in which four Public Sector Undertakings, viz. NTPC Ltd., NHPC Ltd, Power Grid Corporation of India Ltd. and Power Finance Corporation Ltd., together hold 16.20 percent shares (each having 4.05 percent in PTC).
"Mishra was acting as a willing accomplice of Singh. Mishra being the Chairman of PTC India had all the authority to set things right by looking into the issues raised by the IDs. He had a duty to ensure effective functioning of all Board Committees by enabling healthy discussions in meetings. Further, he was duty bound to ensure that the IDs were able to function independently in a conducive environment while at the same time ensuring that the Board decisions were effectively implemented. However, he looked the other way while Singh ran the company as per his wishes, disregarding the concerns raised by the IDs. Accordingly, the role of Mishra in flouting the norms of corporate governance in this matter is well established," Sebi said.
Sebi Show Cause Notice
Intriguingly, Singh did not allow one Ratnesh Kumar to join PFS as a whole-time director even though his appointment was cleared by the board and various committees. After waiting for months, Kumar re-joined NTPC from where he had come. Singh had opposed Kumar's appointment on the grounds that he lacked experience for working in an NBFC. Sebi found instances when the agenda was not shared with the notice but shared later, with very little time for consideration by the directors on the Board. One ID Mr. Jayant Gokhale had raised objections regarding the inclusion of the induction of three IDs onto the Board of PTC India on the ground that the same was not urgent and that the same was being done without prior agenda item being placed.
Sebi found that Gokhale also provided various instances of modification in the draft of minutes of the Audit Committee meetings, where attempts were made to tweak the minutes of the Audit Committee with careful additions and omissions by the management of PTC India.
Singh and Mishra allegedly delayed for two years the disclosure of a crucial forensic audit report that revealed fraud in the loan account of Nagapatnam Power and Infratech or NPL and also made unilateral changes in the conditions of the loan granted to Patel Darah-Jhalawar Highway, without board approvals. Sebi says both had no concern for issues highlighted by former PFS chairman Deepak Amitabh, ignored any communication by the IDs and shared no information about it with the board.
The forensic audit had indicated diversion and mis-utilisation of funds disbursed under the bridge loan to NPL, which raised clear suspicion of fraudulent activities in the account. The audit report noted that PFS did not disclose this to RBI. Even though such non-disclosure or non-compliance may not have involved deliberate or malafide intent but was due to negligence, weak systems and lack of controls - a total management failure.
Sebi has said that its communication (dated June 03, 2022) enquiring into the Audit Committee’s reasons for ‘non-adoption & non-recommendation of third quarter results by the Audit Committee’, was not placed before the Audit Committee. The same came to the knowledge of all the directors on June 28, 2022 after Sebi issued a follow –up email. Minutes were drafted in a manner which failed to accurately capture the actual proceedings and revealed a bias in the drafting. Attempts to reconstitute the Audit Committee despite advice to the contrary from Sebi; and seeking numerous legal opinions, post-facto, in order to justify the stand taken by the management earlier.
Auditors In The Hot Seat
Investigating authorities of the Registrar of Companies (ROC), New Delhi have also summoned the statutory auditors of PTC India regarding their probe. Gaurav Lodha, a partner at Lodha & Co. was summoned by the ROC, which said it had noticed various discrepancies in the accounts, contraventions and non-compliances. Singh was the MD and CEO who is currently on a forced leave while Mishra the former chairman is now the CMD of the company. Both are accused by Sebi of grave mis-management.
Sources say that RBI is also looking into the conduct of Mishra A Sebi notice to Mishra had called him and Singh as the “steering wheel” in the company and held them responsible for the failure of corporate governance.
A notice to Gaurav Lodha said that it had become necessary to record his statement/defence to take the probe to a logical conclusion. ROC had been examining various financial records and documents of PFS that were signed by the auditors.
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The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free.
Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.
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