SEBI Slaps Rs 35 Lakh Fine on PTC India Execs for Corporate Governance Missteps

Subhechcha Mukherjee,

Shyambazar Law College

In a significant regulatory action, the Securities and Exchange Board of India (SEBI) imposed a combined hefty fine of 35 lakhs on PTC India Financial Services’ (PFS) chairman Rajib Kumar Mishra and former managing director and chief executive officer Pawan Singh for lapses in corporate governance[1]. Mishra faces a fine of 10 lakhs, while Singh has been fined an amount of 2 lakhs[2].

Pawan Singh has also been barred from holding any directorial or marginal position for two years, whereas Rajib Mishra has been restricted from holding similar positions for six months.

In its June 12 order, SEBI announced that Pawan Singh had “grossly misused” his position as MD and CEO of PFS and also stated that Rajib Mishra had been acting as “willing compliance.”[3] 

PFS was incorporated on September 8, 2006[4]. It is a non-banking finance company known as an ‘Infrastructure Finance Company’ by the RBI. PTC India owns about 65% of PFS, which has been under scrutiny by both the RBI and SEBI. PTC India is itself a joint venture involving four major enterprises: NTPC Ltd., NHPC Ltd., Power Grid Corporation of India, and Power Finance Corporation (PFC)[5]. These ventures hold a stake of up to 16%, while the remaining 84% is held by different financial institutions, large utilities, and the public at large[6].

Section 15HB of the SEBI Act, 1992, gives exclusive power to SEBI to impose monetary fines for non-compliance with the Act, rules, and regulations, including those of corporate governance norms[7].

PTC Indian Financial Services has been under regulatory scrutiny since three of its independent directors, Santosh B. Nayar, Thomas Mathews, and Kamlesh Shivji Vikamsey, stepped down from the board, stating several government issues are present in the company, such as delayed disclosure of forensic audits, obstructing the appointment of a finance director, etc[8]. SEBI’s investigation revealed that Singh did not disclose the Forensic Audit Report (FAR) 2018 regarding the loan extended to Nagapatnam Power and Infratech Pvt Ltd (NSL) to the board for two years. It also stated that there were unilateral changes being made in the condition of the loan, the opinions of the independent directors were being ignored, and limited or no information was shared with the management of the board. There was incorrect reporting in the corporate governance report; board meetings were being held without a valid quorum, etc. SEBI added that Mishra was running the company on ‘private concern ‘and was only interested in showing his authority in the company at the cost of the company’s interest[9].

Besides SEBI, the Reserve Bank passed an order on June 20, 2023, after which Pawan Singh had to quit earlier after being made to take some time off[10]. While the company did not disclose the order from RBI, several sources say that the bank ordered the replacement of the current MD and CEO. Later, PTC Financial told the Exchanges that, following the RBI’s direction, the board decided on June 20 that Lodha would take over the positions of MD and CEO.

The Companies Act 2013, and SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, mandate companies to strictly maintain government norms like board independence, disclosure of material information, etc[11]. In this particular case, SEBI found PFS had violated several of its regulations, and government norms had also been breached by its executives.

The regulatory actions and governance issues had led to a significant loss for PFS’s financial health. PFS’s assets decreased from Rs 13,193 crore in FY19 to Rs 7,634 crore in FY23[12]. Due to this fallout, many investors and stakeholders are concerned about the governance regulation, and it has also tarnished the PFS’s reputation.

SEBI stated in its order that “the MD and CEO in a company, though sitting in a high position within the management hierarchy, is duty-bound to follow the decisions of the board of his company and cannot exercise his power unilaterally in an unfettered manner.”[13]

Ashwani Bhatia, SEBI’s whole-time member, added that “such tendencies, when adopted by the persons occupying the 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.”[14]

SEBI’s order against PTC India Financial Services’ top executives, Rajib Kumar Mishra and Pawan Singh, serves as a reminder to adhere to good corporate regulation, prioritise the welfare of all stakeholders, and uphold the importance of independent directors.

References

[1] Kumar, R. (2024) Sebi imposes rs 35 lakh penalty on PTC India Financial Services officials for corporate governance lapses, Live Law. Available at: https://www.livelaw.in/news-updates/sebi-rs-35-lakh-penalty-ptc-india-financial-services-officials-corporate-governance-lapses-260535 (Accessed: 20 June 2024).

[2] ibid

[3] www.ETEnergyworld.com (2024) Sebi imposes rs 35 lakh penalty on PTC India’s Pawan Singh, Rajib Kumar Mishra for corporate governance lapses - ET energyworld, ETEnergyworld.com. Available at: https://energy.economictimes.indiatimes.com/news/power/sebi-imposes-rs-35-lakh-penalty-on-ptc-indias-pawan-singh-rajib-kumar-mishra-for-corporate-governance-lapses/110945888 (Accessed: 20 June 2024).

[4] Kumar, R. (2024b) Sebi imposes rs 35 lakh penalty on PTC India Financial Services officials for corporate governance lapses, Live Law. Available at: https://www.livelaw.in/news-updates/sebi-rs-35-lakh-penalty-ptc-india-financial-services-officials-corporate-governance-lapses-260535 (Accessed: 20 June 2024).

[5] Ibid

[6] ibid

[7] ibid

[8] At PTC India Financial, 3 independent directors resign, throwing a corporate governance grenade (no date) The Wire. Available at: https://thewire.in/business/ptc-india-finance-independent-directors-resign (Accessed: 20 June 2024).

[9] Standard, B. (2024) SEBI imposes fine of Rs 35 lakh on PTC arm’s top brass for governance lapse, Business Standard. Available at: https://www.business-standard.com/markets/news/sebi-imposes-fine-of-rs-35-lakh-on-ptc-arm-s-top-brass-for-governance-lapse-124061201117_1.html (Accessed: 20 June 2024).

[10] Kumar, R. (2024a) Sebi imposes rs 35 lakh penalty on PTC India Financial Services officials for corporate governance lapses, Live Law. Available at: https://www.livelaw.in/news-updates/sebi-rs-35-lakh-penalty-ptc-india-financial-services-officials-corporate-governance-lapses-260535 (Accessed: 20 June 2024).

[11] Kumar, R. (2024) Sebi imposes rs 35 lakh penalty on PTC India Financial Services officials for corporate governance lapses, Live Law. Available at: https://www.livelaw.in/news-updates/sebi-rs-35-lakh-penalty-ptc-india-financial-services-officials-corporate-governance-lapses-260535 (Accessed: 20 June 2024).

[12] Ibid

[13] Standard, B. (2024) SEBI imposes fine of Rs 35 lakh on PTC arm’s top brass for governance lapse, Business Standard. Available at: https://www.business-standard.com/markets/news/sebi-imposes-fine-of-rs-35-lakh-on-ptc-arm-s-top-brass-for-governance-lapse-124061201117_1.html (Accessed: 20 June 2024).

[14] Standard, B. (2024) SEBI imposes fine of Rs 35 lakh on PTC arm’s top brass for governance lapse, Business Standard. Available at: https://www.business-standard.com/markets/news/sebi-imposes-fine-of-rs-35-lakh-on-ptc-arm-s-top-brass-for-governance-lapse-124061201117_1.html (Accessed: 20 June 2024).