Resignations at PTC India Financial Services put focus on governance

Mumbai: The latest resignations by independent directors of PTC India Financial Services (PFS) have brought to focus instances of mis-governance, management high-handedness and evergreening of loans at the company.

Three independent directors have resigned since November 22 amid allegations of mis-governance at the company. Independent directors Jayant Gokhale and Devendra Saksena resigned on December 2 while Sushama Nath resigned on November 22 after the release of the audit report earlier in the month.

In his resignation letter, Gokhale has accused the management of creating hurdles against smooth working of the board while refusing to acknowledging any deficiency in the running of the business.

"What finally convinced me to take the step of resigning was the persistent refusal of the management to cooperate with the conduct of the forensic audit and the ultimate conclusion drawn by management that the forensic audit report did not contain any significant findings whatsoever. Despite the forensic auditor pointing out numerous lapses and irregularities; the management continues to insist that there is nothing wrong and in fact, challenges the forensic auditor's understanding and interpretation of certain basic facts," Gokhale said.

The forensic audit mentioned by Gokhale in his resignation has brought to light evergreening of loans, convince with borrowers, non-cooperation with the board and stalling of board appointments against the current management of the non-banking finance company bringing the company under regulatory glare.

In its report audit firm CNK & Associates point to irregularities in loan and corporate governance issues which were flagged by independent directors but were ignored by the management. The company has denied all these allegations.

For example, the report points to a proposed one-time settlement (OTS) on a Rs 125 crore loan given to Hyderabad-based NSL Power despite a 2017 audit which had described NSL as a non co-operative borrower with a suspected fraud.

The proposal for the one-time settlement was not shared with the board initially and shared only later, giving the borrower benefit of saved interest cost and time. The current CEO and then director finance Pawan Singh was responsible for the sanction of the loan.

In response to ET's query, PFS said that the said loan was sanctioned in 2014 and initiated by then chairman, Deepak Amitabh. "As per organization policy, the proposal for OTS was shared with PFS board / committee in 2020 after getting valid OTS proposal with requisite earnest money deposit and is pending for decision with PFS board / committee since then.

“It is further to mention that not a single loan sanctioned during the tenure of Pawan Singh as CEO has turned NPA in books of the company,” PFS said in an emailed response. The forensic audit mentions a total of 20 instances of loans in 15 accounts where the borrower has taken funds from the company to pay back its own outstanding loans to PFS which in banking parlance is called evergreening.

The company spokesperson, however, said the forensic report mentions ‘possible’ evergreening “which demonstrate that forensic auditor was himself not knowing the actual status”.

“PFS has taken an opinion from a former Chief Justice of India, leading consultancy firm, Ernst & Young, leading law firm, Cyril Amarchand Mangaldas, ex-director finance, Power Finance Corporation, referred RBI guidelines and publication of Insolvency & Bankruptcy Board of India, as per which there is no evergreening in any of the account of PFS. As on date, majority of accounts referred for possible evergreening in forensic audit report, there is no loan outstanding,” the spokesperson said.

In another instance the PFS management changed a pre-disbursement condition on a Rs 150-crore loan to Patel Darah Jhalwar Teendhar for four-laning of a segment of NH12 without board approval, giving the borrower undue advantage by extending the timeline beyond the board approved July 31, 2021, for commissioning of the project. The disbursement was made on June 10, 2021, knowing that the extension in date of commissioning was only up to June 6, 2021. The forensic audit report indicates that the disbursement funds were used to repay PFS’s loans which was an instance of evergreening.

The PFS spokesman, however, denied that there was any deviation on board approval and said all pre-conditions were duly complied before first disbursement.

A person familiar with the workings of the company said there are many instances pointed out in the forensic audit report which is in the public domain. “Independent directors have been continuously undermined, making it difficult for them to do their job. It is up to the regulators now to take action based on this detailed report which is in the public domain,” said the person said.

The latest independent director resignations are a repeat of January this year when independent directors Kamlesh Vikamsey, Santosh Nayar, and Thomas Mathew resigned related to loan-related concerns and other corporate governance issues, including stalling Ratnesh Kumar’s appointment as CFO of the company.

Not allowing Kumar to take charge was also among corporate governance issues flagged by CNK. Kumar was appointed by the board but the management led by CEO Pawan Singh did not allow him to take over as wholetime director (finance). This, it is alleged, is to ensure that the issues with relation to some loan accounts do not come out.

In response to the ET query, the spokesperson said the PFS management has no role in appointment of Ratnesh Kumar. “Whole time director (finance) was to be hired on absorption basis whereas Mr Ratnesh failed to provide unconditional relieving letter from his former employer and further unable to complete critical joining formalities including submission of his consent in DIR-2, disclosure of interest in MBP-1 and DIR-8 as per Companies Act 2013,” the spokesperson said.

The auditor has also alleged lack of co-operation from the management as information sharing was delayed and CEO Singh refused to provide a signed declaration on documents, reports and minutes thar were provided to them. The spokesperson said that all information was duly provided to CNK as per an engagement letter signed by the company. “CNK has not reported a single instance of any pendency as per scope of engagement letter. A declaration signed by senior officials of the company was also provided to CNK,” the spokesperson said.