Explained: Why PTC India Financial has drawn SEBI’s ire as stock slumped
The Securities and Exchange Board of India (SEBI) has rejected PTC India Financial Services Ltd’s plea to hold a board meeting in the absence of independent directors, stating dissatisfaction over its failure to address corporate governance issues.
This is the second time when the capital markets regulator has denied an exemption after all three independent directors offered to resign three days ahead of the company’s scheduled board meeting on January 22.
All three independent directors alleged misconduct on the appointment of another director as well as its operations, hinting at larger corporate governance issues.
The story so far
PFS, an infrastructure financier, is promoted by power trading company PTC India Ltd (PTC). It is registered with the Reserve Bank of India (RBI) as a non-banking finance company (NBFC) and is classified as a systemically important non-deposit taking NBFC.
On January 19, independent directors Kamlesh Shivji Vikamsey, Santosh B Nayar and Thomas Mathew T resigned over corporate governance issues and other matters.
SEBI pulled the company and denied a board meeting three days later. According to SEBI rules, a listed company should have a certain number of independent directors for meeting the quorum requirement of a board meeting.
SEBI had asked PFS to submit a report on action taken within four weeks, which the company did. After submitting the report, the PFS management yet again wrote to the regulator seeking permission to hold a board meeting.
Parent company PTC said it will set up an internal team to probe the allegations made by the independent directors. Instead, it directed its risk management committee to look into corporate governance issues at PFS.
Later, in a stock exchange filing, PFS said the company submitted a point-wise reply to the allegations made by the independent directors in their resignation letter dated January 19, and also the action taken report as desired by SEBI.
However, SEBI is not satisfied with the company on addressing the matter.
Who else is looking into the matter?
The RBI has also conducted a routine audit and questioned some executives for explanations on the allegations made by the independent director. The Ministry of Corporate Affairs (MCA) has also taken cognisance of the situation and sought some preliminary information on the matter.
What PFS said to its investors?
The company informed the stock exchanges said that SEBI, in an email dated March 2, rejected the company's request for conducting a board meeting without an independent director.
“The matter is being taken up with the SEBI for effective resolution and shareholders shall be kept informed in this regard,” it added.
How did the market react?
Shares of PFS opened lower on Friday and eventually closed at Rs 16.35 apiece on the BSE, down 1.51% from the previous close. The stock has lost nearly 40% of its value since the resignation of independent directors mid-January.
Shares of PTC India also declined 1.12% on Friday to close at Rs 84.05 apiece. The stock has lost more than 25% of its value in the last two months.
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