Almost a year after corporate governance issues were highlighted in PTC India Financial Services Ltd (PFS) by three independent directors while resigning from the board, the Reserve Bank of India (RBI) has tightened its grip on the company’s management and its parent.
In a strongly-worded letter to the management, the central bank has asked the management of PTC India Ltd’s non-banking financial company (NBFC) – PFS – to answer some of the questions raised in the recently-conducted forensic audit. It has specifically questioned the role of Chief Executive Officer Pawan Singh.
“RBI is taking the matter of corporate governance practices in PFS very seriously, especially in the backdrop of what happened with DHFL. They are investigating this matter,” a source involved in the development told Moneycontrol.
An email sent by Moneycontrol to PFS did not elicit a response. Moneycontrol also tried to reach out to Singh, but he did not comment.
Incidentally, in an interview to Moneycontrol earlier this week, Singh had said that the governance controversy is behind it, and that the company is now looking to scale up business in 2023-24 after it was hurt in 2022-23 due to its inability to hold board meetings on time and take decisions.
“RBI has looked into the matter last year, and their officials questioned the PFS team. The forensic report reveals there were issues, but the management continues to deny it. The high-handed manner in which the management has been dealing with the accusations has alarmed the regulatory bodies,” another source privy to the information, said.
How it started?
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. Two days later, former bureaucrat Rakesh Kacker, resigned as independent director at the parent company PTC India. Kacker, who was also an independent director at PFS until the end of December 2022, also wrote to the management highlighting lapses in corporate governance.
PFS and parent PTC India both, denied the allegations. The management of PFS filed an ‘Action Taken Report’ on February 8, 2022. But the Securities and Exchange Board of India (SEBI) pulled up PFS, barring the NBFC from holding a board meeting until it addressed the corporate governance issues as it was not satisfied with the action taken.
In March 2022, PFS appointed four independent directors on the basis of suggestions made by PTC, as the slots had been lying vacant for more than two months. This was done to ensure the smooth functioning of the board. Subsequently, in April 2022, PFS appointed CNK & Associates, LLP, to conduct a forensic audit of the company.
Forensic audit report and more resignations
CNK, in its report, highlighted issues with practices at PFS and raised concerns over “possible evergreening” of certain accounts. The report also said that the company denied giving some crucial information needed for the investigation, amounting to lack of cooperation by the management.
After the report was submitted, the company sent a detailed disclosure to the stock exchanges on November 9, 2022, refuting most of the observations.
Singh told Moneycontrol in the interview earlier, “Like the IDs, the forensic report came out with some wide statements. In one place, they have said there is a possible evergreening of loans. Now, they have not understood the word ‘evergreening’ and used it loosely. What can we do with such speculative suggestions? But there are a few suggestions on the process side, which are not conclusive. We have looked at them and we are trying to pick up from those pointers.”
Soon after CNK submitted the report, in November-December 2022 PFS witnessed resignations of three more independent directors ― Jayant Purushottam Gokhale, Devendra Swaroop Saksena and Sushma Nath. Gokhale’s scathing resignation letter stated that he took the step due to the “persistent refusal of the management to cooperate with the conduct of the forensic audit and the ultimate conclusion drawn by the management that the forensic audit report did not contain any significant findings whatsoever.”
All is well…maybe not
PFS and PTC India have time and again refuted the allegations regarding corporate governance issues.
In a disclosure to the exchanges on December 28, PFS said that it had responded to the irregularities pointed out by CNK in the preliminary and draft report and that the company had engaged an external independent consultant, Ernst & Young LLP (EY), to independently verify each finding and management response. PFS said that the forensic auditor, inexplicably, chose to completely ignore and disregard the management’s responses in its final report.
Singh told Moneycontrol earlier that the company had complied with the SEBI requirements. As regards the RBI, he was still more non-committal. “Normally, with the RBI, we have an ongoing relationship and that continues. I will not be speaking much about the regulators now. I can’t make statements on their behalf,” he had said.
Proxy advisory firm Institutional Investor Advisory Services (IiAS) advised shareholders to vote against the appointment of Singh at the AGM on December 30, but the resolution was passed with over 97 percent votes.
The management insists the worst is behind it and has dismissed the findings of the forensic audit, citing views of independent parties like EY and former chief justice of India.
When Moneycontrol asked Singh if these parties, including EY, were given access to only the report or all the material that the investigation was based on, Singh said, “Whatever was given to CNK was given to them; it was almost a parallel analysis. These are experts from EY, which has one of the best forensic teams. We also got an ex-chief justice of India looking at it.”
But the EY report includes disclaimers that suggest otherwise. EY states that their findings were based on information and documents to the extent provided to them by the management and it is possible it may have been different if they reviewed the whole documentation and information on a particular matter. “We have also relied on the verbal justifications provided by the PFS management. We have relied on the justifications provided by the management on the observations stated by the forensic auditor… it is possible that there are factual inaccuracies where we have not been provided with the complete picture/information/documentation on a particular matter by the process owners.”
Two former members of that board that Moneycontrol spoke to expect more issues to come out if RBI and Ministry of Corporate Affairs investigate the matter.
“In the guise of transparency, the PFS management has been sending pages of clarification and statements to the exchanges. The superfluous information may misguide investors. The regulators need to look deeper,” a former member of the board, said.
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