SEBI Imposes Rs 35 Lakh Penalty On PTC India Financial Services Officials For Corporate Governance Lapses

Section 15HB of the SEBI Act, 1992 empowers SEBI to impose monetary penalties for violations of the Act, rules, and regulations, including those relating to corporate governance norms.

PFS, a non-banking financial company, is a subsidiary of PTC India Ltd., which holds a 65% stake in the firm. The regulatory body's decision also restrains Singh and Mishra from holding any director or key managerial personnel positions in any listed company or SEBI-registered intermediary. This restriction applies for a period of two years for Singh and six months for Mishra. The order from SEBI follows allegations and findings that pointed to egregious misuse of their positions and failure to adhere to corporate governance norms.

The allegations at PFS surfaced when three independent directors resigned in January 2021 stating violations of corporate governance norms. These resignations prompted SEBI to launch an investigation. According to SEBI's findings, Singh misused his position as the MD and CEO to obstruct the appointment of Mr. Ratnesh as the Whole-Time Director (Finance) and CFO, despite the Board of PFS approving this appointment. Singh's actions were seen as an effort to retain unchallenged control over company operations, which was detrimental to the company's interests.

The SEBI order stated that Singh disregarded the Board's decisions and failed to inform it about critical issues, such as the loan account of NSL (a loan account flagged in FAR-2018 for suspected fraud), for two years. Additionally, Singh delayed the implementation of the Board's recommendation to report the NSL matter to the Reserve Bank of India (RBI) as suspected fraud.

SEBI's investigation held that Singh ran the company in a manner where his decisions dominated, even when it negatively impacted the company. The independent directors (IDs), who are crucial for maintaining checks and balances within a company, found themselves in constant conflict with Singh. This confrontational environment led to two successive waves of resignations among the independent directors. SEBI's order further held that such behavior from top management severely impacted the company's overall performance. This was evident as PFS's assets declined from Rs 13,193 crore in FY19 to Rs 7,634 crore in FY23.

Rajib Kumar Mishra, the non-executive chairman of PFS and also the Chairman and Managing Director of the parent company PTC India, was found to be complicit in Singh's actions. Despite his authority to correct the course of action and ensure effective Board functioning, Mishra did not intervene. Consequently, Mishra's inaction in ensuring the Board's effective functioning and addressing IDs' concerns was considered a significant lapse.

The SEBI order stated that while there was no evidence of market manipulation, the governance failures were glaring.

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