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New Delhi: The disappointing state of corporate governance within India Inc was thrown into sharp relief once again when PTC India Financial Services Limited, an infrastructure financing company, disclosed to the bourses that three of its independent directors had resigned from the company.
Kamlesh Vikamsey, Thomas Mathew T. and Santosh Nayar resigned with immediate effect on Wednesday.
The company is a registered NBFC and falls under the jurisdiction of the RBI as far as the conduct of its business is concerned. PTC India owns a majority 65% stake in the company while the LIC of India holds a 2.13% stake.
The three independent directors highlighted a number of problems faced by them which were “either given a deaf ear to or were rejected time and again” by the management of the company.
The problems listed by them make for a distressing read and throw a spotlight on how Indian companies routinely fail when it comes to strengthening corporate governance norms.
On what grounds did the independent directors resign?
Appointment of Ratnesh as director (finance) and CFO
In his resignation letter to the company, independent director Thomas Mathew T. states that the current managing director of the company did not allow Ratnesh to join as director (finance) and CFO despite him being appointed after following a board mandated process.
“..the current chairman and MD apparently did not take any steps to enable the functioning of Mr Ratnesh as Director (Finance) & CFO and subsequently seems to have taken a unilateral decision to put the joining of Mr.Ratnesh on hold, even without informing the board about such decision or the rationale therefore leave alone taking the prior consent of the Board for such a major decision.”
Bridge loan of Rs 125 crore to NSL Nagapatnam Power and Infratech Private Limited
PFS approved a loan of Rs 125 crore to NSL in a January 2014 meeting which was disbursed two months later and the repayment for which was to commence in four quarterly instalments after a moratorium of 12 months. Subsequently, the company ran into trouble and because of the ongoing stress in the company, insolvency proceedings were launched against it. The promoter company of NSL placed a one-time settlement offer before the business committee of PFS in March 2020. On consideration of the OTS offer, the business committee directed the management of the company to renegotiate the offer.
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Later in December 2020, a revised agenda was circulated vis-à-vis the NSL loan. The agenda also contained a Forensic Audit Report (FAR) of the loan carried out on instructions of the management of the company. The existence of the FAR raised the Board’s concern given that the board was kept in dark about its existence for more than two years. The board at its meeting dated December 19, 2020, took cognisance of the non-disclosure and constituted a committee of two independent directors to look into the matter. It had to face “inordinate delay in getting required documents and correspondence from the management for its work”.
The company management has been accused of being “non-cooperative” and “evasive”, and effectively thwarting the efforts of the audit committee to bring the NSL loan issue to finality by either not submitting information demanded by the committee or by submitting information with a substantial delay, that was often unsatisfactory.
No action on corporate governance issues
The previous chairman of the company – Deepak Amitabh – had highlighted several corporate governance issues in the company in August 2021. Despite several reminders from the independent directors, these issues have remained unresolved, according to the independent directors.
“The lack of action on the part of the company management is alarming, especially since the company is a listed company and has obligations to not just itself as an entity but also its investors,” one of the letters states.
Unilateral changes in loan conditions without board approval
The board of the company had expressed concern over the unilateral and unauthorised changing of terms and conditions of loan extended to Patel Darah-Jhalawar Highway Private Limited. A report was sought on it by October 2021. The same is yet to be submitted to the board.
Expressing his dismay, Thomas Mathew T. states, “It was a coincidence that such unilateral change came to the notice of the board, and it raises suspicion of many more such instances of similar nature which exist in the company, and the board oblivious on account of non-disclosure by the company. It is also a governance control issue since the management is acting without the approval, authorisation and consultation with the board.”
Communication by independent directors being ignored
The independent directors contend that various emails sent by them have not been acknowledged or responded to by the company management.
“It should be borne in mind that independent directors are the vanguards for a given company and shoulder responsibility not only to the company but also its investors, shareholders and regulators. Such non-cooperation on the part of the management and the company is unfortunate and a deterrent to the spirit of the law…,” the directors argue.
The three directors contend that they are not being provided with the information sought by them. Even when information is indeed provided, it tends to incomplete, misleading or inaccurate.