3 Independent Directors Resigns, Company Faces Allegations Of Corporate Governance Issues

Three independent directors of PTC India Financial Services (PFS) have quit after flagging several serious governance lapses at the lender. PFS is a subsidiary of PTC India (formerly Power Trading Corporation of India), a company that provides power trading solutions, cross border power trading, and consultancy services.

PFS, however, is involved in providing funding for various infrastructure projects. The stock slid almost 19 per cent after the company announced the resignation of the independent directors. The copy of the announcement sent to the exchanges contains the letters of the three directors which shed some details on the instances of mis-governance.

New CFO Leaves within a Month

The three independent directors quit together citing governance issues at PFS. Among the first issues cited by the directors is the appointment of Ratnesh as the Director of Finance and the Chief Financial Officer. While Ratnesh’s appointment had been duly notified to the stock exchanges, the Managing Director did not allow him to function as the CFO. Allegedly, the MD did not even intimidate the Board even after putting Ratnesh’s appointment on hold.

As a result, Ratnesh went back to NTPC on 6 December 2021. There was no explanation provided about him re-joining NTPC or the circumstances that resulted in his return. The management has “steadfastly refused” to offer any clarity on the issue to the Board, though the Board has repeatedly asked for an explanation. Describing Ratnesh as an outstanding executive, the outgoing independent directors highlighted that there is just a single Whole Time Director on the Board.

Loan Frauds?

The company had approved a bridge loan for NSL Nagarjuna Power and Infratech Private Limited to set up a coal-based power plant of 1320 MW capacity. The bridge loan of Rs 120 crore was carved out of a term loan of Rs 150 crore, and the company would begin paying back in four quarterly instalments after a 12 month moratorium period.

However, due to the project undergoing stress, the management worked on a One Time Settlement (OTS) with the NSL’s promoters. But the Board asked the management to renegotiate the OTS offer.

Finally, in December 2020, the Board received a revised agenda containing a forensic audit of the NSL account. But, the audit was dated November 2018 – a disclosure that was delayed by two years. The Board questioned the management and initiated a committee to oversee the delayed disclosures.

The management has again been accused of not being forthcoming in providing an explanation for the delayed disclosure. As a result, the committee recommended that the matter should be reported to the Reserve Bank of India for fraud.

“Please note that the efforts of the Audit Committee to bring this matter to finality has been thwarted by the non-cooperative and rather evasive management, which did not submit the information requested by the Audit Committee or done so with substantial delay, and more often than not with unsatisfactory response,” said the independent directors’ letter.

In another case, the management had lent out Rs 150 crore for four-laning the Darah-Jhalawar-Teendhar section NH-12 in Rajasthan. The conditions for the loans were changed and repayment timelines were modified without any prior approval being taken from the Board.

Despite the Board expressing its concerns and asking for an explanation, the management has refused to elaborate on the issue. During the board meeting on 29 September 2021, the board had asked the management to provide a report on the unilateral and unauthorised change in loan conditions.

Though the deadline for the report was 31 October 2021, no report has been furnished yet. The independent directors argue that the change came to the notice of the Board due to a coincidence and that there were many such changes made of a similar nature which might have remained hidden due to the non-transparency of the management.

Lack of Transparency

It appears that the management has failed to provide proper disclosure on many occasions, even misleading the Board on some occasions. For instance, a circular dated 10 January 2022 for the waiver of special conditions to the IL&FS Tamil Nadu Power Company Limited. However, the note does not highlight the instance of fraud, which has been only revealed in the annexure.

Apart from these, email regarding the corporate governance issues highlighted above went unanswered as well. Further, Renu Narang’s nomination was allegedly withdrawn to make the Nomination and Remuneration Committee dysfunctional. The committee is yet to be reconstituted, which is in violation of the Companies Act and Securities and Exchange Board of India’s regulations.

The future is likely to be turbulent for both PFS’ shareholder and its management. PFS’ current Chairman and MD, Pawan Singh, might have some explaining to do in light of the serious allegations that have surfaced. PTC currently has a loan book of around Rs 13,000 crores, majorly made up of loans to infrastructure players.


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