PNB Housing Finance-Carlyle deal: Sebi questions directors’ role

Mumbai: The Securities and Exchange Board of India (Sebi) has questioned the role played by the directors of PNB Housing Finance in the planned preferential allotment of shares to the Carlyle Group, in a letter sent late last month.

“On the basis of material available on record, it is evident that the company has failed to comply with the principles governing disclosures and obligations of a listed entity,” Sebi said in a June 25 letter to the company. ET has seen a copy of the note. “Keeping in view the aforesaid apparent transgression of the law, the company and the board of directors are called to explain as to why it cannot be construed that the directors have failed to discharge responsibility cast upon them in law and consequently why appropriate actions in terms of law be not considered for such failure.”

This follows a June 18 letter to PNB Housing asking it to put on hold the vote by shareholders on the allotment. The PNB Housing board had approved the allotment in May as part of an exercise to raise ₹4,000 crore, with Carlyle becoming a majority owner. The deal came under a cloud over pricing and reports of alleged conflict of interest, all of which the company has denied.

SAT Hearings
PNB Housing has responded to both letters from Sebi, said people with direct knowledge of the matter. It has also contested both missives before the Securities Appellate Tribunal (SAT), they said. SAT continued hearings into the matter on Monday.

The June 25 letter was signed by Achal Singh, deputy general manager (DGM) of Sebi.

Sebi didn’t respond to queries. A PNB Housing Finance spokesman said, "Our counsel has taken up the matter before the Hon’ble Securities Appellate Tribunal (SAT) today. The hearing is adjourned for tomorrow."

Apart from asking the company to put the vote on hold in the June 18 letter, it had told PNB Housing to appoint an independent valuer and ascertain whether the allotment price was fair.

Legal experts said the latest action by Sebi signals that it may be tending toward holding the board accountable for the decision.

"Originally, it started as a fact-finding mission to understand if the pricing was fair but now it has been turned into an issue where the board is being threatened with action," said a lawyer with direct knowledge of the matter.

Senior counsel Janak Dwarakadas appeared for PNB Housing Finance on Monday. Sebi will present its arguments on Tuesday.

According to PNB Housing’s articles of association (AoA), an independent valuation report is needed before any new allotment.

"However, the AoA is just a part of the contract, it is not a law in itself," said another lawyer aware of the development. "The only question that needs to be asked here is whether PNB Housing has followed all the applicable laws or not."

A person familiar with the situation said all directors have filed replies to the second notice by Sebi explaining their position.