Why Did RBI Seek Comments from SEBI for Granting NBFC Licence to Defaulting Promoter of RattanIndia Power?
As elaborated in our three parts series, the Reserve Bank of India (RBI) indeed seems to have helped the promoter of a defaulting company to get a licence to start a non-banking finance company (NBFC) through the takeover route. The defaults of RattanIndia Power Ltd worth Rs12,000 crore were mentioned in the company's annual report for FY2014-15. Yet, rather than taking cognizance of the huge defaults of the promoter entity, the RBI sought comment from the market regulator Securities and Exchange Board of India (SEBI) on Rajiv Rattan, promoter of the company, reveals the reply received under the Right to Information (RTI) Act. So far both RBI and SEBI have kept mum on the issue. 
 
A note re-submitted by RBI’s department of non-banking supervision on 27 October 2016 states, “If approved, we may request SEBI to furnish whether any supervisory concerns are observed in the companies in which the proposed director Mr Rajiv Rattan is a director.”
 
The next note dated 9 November 2016 talks about giving prior approval for change in the management and control of Vikhyat Finlease and Trading Pvt Ltd by Mr Rattan and two others. 
 
Point 3 in this letter states: "Mr Rajiv Rattan (proposed director and shareholder) was found to be the director of RattanIndia Power Ltd and RattanIndia Infrastructure Ltd, which are regulated by SEBI. SEBI has informed that they have no adverse comments to offer against Mr Rajiv Rattan and the companies in which he is a director."
 
 
However, RattanIndia Power had already been found to have defaulted in repaying loans worth Rs12,000 crore and had already placed the defaults and the rescheduling of loans in its annual report for FY2014-15. 
 
In fact, in October 2016, a month before RBI issued the above mentioned note, CARE Ratings too had downgraded RattanIndia Power to ‘D’ after noticing the defaults. 
 
A look at the excerpts of the audit report below clearly reflects delays evident in FY14-15 itself. The amount rated with a default rating is Rs7,942 crore for RattanIndia Power and Rs4,240 crore for its subsidiary; aggregate to more than Rs12,000 crore on a consolidated basis.
 
 
The promoter of the RattanIndia Power sought RBI’s permission to acquire an existing NBFC (with marginal operations) and become its new promoter and director. RBI approved the acquisition of the NBFC in November 2016 when defaults amounting to Rs12,000 crore of debt in group entities were out there in the open. 
 
 
RBI, being a banking regulator should have known the defaults of RattanIndia Power, but seems to have overlooked them. Especially, the banking regulator should have taken a strong objection over continuous defaults in RattanIndia Power, and looked at the ‘fit & proper’ criteria of Mr Rattan, in continuation of his directorship and position as chief executive at the power company.
 
Vikhyat Finlease had submitted two letters on 18 January and 2 February 2016 respectively, seeking prior approval from the central bank. However, as per the office note from RBI, the NBFC did not meet the principal business criteria (PBC) and its financial assets were lower than 50% of its total assets. In addition, net owned fund (NOF) of Vikhyat Finlease was also just Rs46.71 lakh, the note says. 
 
This note also mentions the cancellation of a proposal by Vikhyat Finlease for change in control and management by acquisition of its share by a limited liability partnership (LLP firm). However, file notings by an assistant general manager (AGM) from RBI directs to ‘call the proposed acquirer for a discussion on the subject before writing anything to the company.”
 
 
Vikhyat Finlease and Trading had two directors, Saroj Jain with a stake of 99.72% and Manoj Kumar Thakur without any stake. Shailendra Singh held the balance 0.28% stake in Vikhyat Finlease but he was not director the company.  
 
On 26 April 2016, a letter was submitted to RBI seeking prior approval for change in management and control of Vikhyat Finlease citing inability of Ms Jain and Mr Thakur to run the company without adequate resources to meet the NOF requirements of the RBI. The letter proposed three new directors, Rajiv Rattan, Anjali Nashier and Ram Kumar. However, only two of them, namely Mr Rattan and Ms Nashier were shown to be holding 50% stake each in Vikhyat Finlease.
 
Again, on 30 May and 20 June 2016, Vikhyat Finlease submitted letters for prior approval for change in control of the company. Here also the RBI note dated 30 June 2016, asks to ‘call for required clarifications’ on the company’s principal business criteria (PBC) and NOF criteria. The note says, “Company is not meeting the PBC in 2016. Statutory auditor’s certificate (SAC) shows the company meeting the PBC, but balance sheet (of the company) is not cleared.”
 
The next office note from RBI dated 30 July 2016 says, “Company has submitted clarification regarding our queries. We may accept it.”
 
The RBI office note dated 29 September 2016 mentions the sudden change in Vikhyat Finlease’s NOF and an entry of Rs60 lakh in the balance sheet. “Sudden change in the share capital (in 2015, NOF-Rs46.71 lakh, in 2016-NOF Rs121.88 lakh and balance sheet shows that the issue of share worth Rs60.00 lakh), we may call for the details of Rs60 lakh amount.”
 
The note also points out that Ram Kumar was a proposed director but his name was not there in the board resolution submitted by Vikhyat Finlease. In addition, all proposed directors had submitted credit reports from CIBIL for FY2014-15, which the note says, should be the latest. 
 
The next note on 9 November 2016 states that the company’s application was found in order, and “we may, if approved, request chief general manager, New Delhi office (since the powers for dealing with such cases has been entrusted to the CGM) to grant approval for transfer of shares of the company…”
 
Based on recommendation from this note, on 16 November 2016, RBI allowed Vikhyat Finlease to change its control and management. 
 
Our emails sent to RBI and SEBI have remained unanswered till writing this story. We will update this story as and when we receive any reply from them.
 
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COMMENTS

B. KRISHNAN

1 week ago

The term "chowkidar chor" is more appropriate for RBI!

Ramchandra Karve

2 weeks ago

Amount of loan granted to the Defaulting NBFC should be recovered from the salaries and pensions of the concerned RBI Officials and disposal of their property. Action on the part of RBI Officials of granting licence to the defaulting NBFC also amounts to Gross Negligence on their part in the discharge of their duties. Ramchandra Karve Retired officer from Reserve Bank of India Mumbai

REPLY

AAR

In Reply to Ramchandra Karve 2 weeks ago

Who will do that? Almost all government agencies in India are corrupt and have no integrity. We need to go back to rule by Kings and Queens. Maybe Chola Kings or King Ashoka to rule India again.

priyanka

2 weeks ago

No values , shameless

Ramesh Poapt

2 weeks ago

OMG!!!

AAR

2 weeks ago

First time I approached Bank for a housing loan, I somehow felt hesitant to even request for it.
These Corporates are bold in getting 12000 crores loan and shamelessly defaulting on it.
We indeed need to appreciate their confidence level.

Britannia violated SEBI listing norms on Wadia arrest: InGovern
Proxy advisory and corporate governance firm InGovern on Tuesday said that Britannia Industries Ltd violated market regulator Sebi's listing regulations by not reporting the recent arrest in Japan of its promoter Ness Wadia.
 
Ness Wadia, son of industrialist Nusli Wadia, was handed a two-year prison sentence for drugs possession while on a skiing holiday in Japan. The sentence was suspended for five years.
 
"Britannia is in violation of Sebi's listing obligations and disclosure requirements (LODR). The arrest of the promoter should have been disclosed by the company to the exchanges, which was not done," InGovern founder Shriram Subramanian told IANS in an interview.
 
In response to a regulatory query on the matter earlier, Ness Wadia had said that the "judgment referred to is clear. It is a suspended sentence".
 
"Hence, I am suitably advised that it will not impact nor impair me in the discharge of my responsibilities and I will be able to play the role that I have done hitherto, in both the company and the group as also my other activities," Ness Wadia said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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SAT Stays SEBI Orders Against 3 Brokers, 3 NSE Officials
The Securities Appellate Tribunal (SAT) has stayed orders passed by market regulator Securities and Exchange Board of India (SEBI) against three brokerages and three senior officials of the National Stock Exchange (NSE) in the NSE co-location (Colo) or algo trading scam. However, the Tribunal has asked the brokers, GKN Securities, Way2Wealth Brokers Pvt Ltd and OPG Securities to deposit 50% of the penalty amount as security by 20 May 2019. The SAT also stayed SEBI order on barring three NSE officials from holding any position in any market intermediaries for two years. 
 
Last week, SEBI has barred OPG Securities and its directors Sanjay Gupta, Sangeeta Gupta and Om Prakash Gupta from the markets for five years for securing unfair access to NSE’s trading systems. They were also asked to pay Rs15.57 crore along with an interest of 12% from April 2014 onwards. 
 
Both Way2Wealth Brokers Pvt Ltd and GKN Securities were barred by SEBI for one year from accepting any new client. Way2Wealth was asked to pay a fine of Rs15.34 crore along with an interest at 12% from 10 September 2015, while GKN was fined Rs4.9 crore, which it was required to pay along with an interest of 12% from 11 September 2015. 
 
Last week, on Friday, SEBI has allowed the three brokerages to close their open positions in the futures and options (F&O) and currency derivatives segment within two months.
 
Separately, the Tribunal has stayed SEBI orders that barred Ravi Varanasi, who was head of the business development function at NSE, Nagendra Kumar (head of membership department) and Deviprasad Singh (head of Colo support) for two years from holding any position with a market player. 
 
According to sources, Ravi Varanasi, Nagendra Kumar, Deviprasad Singh and Suprabhat Lala, who at various times headed NSE’s vigilance, compliance, trading and customer relations, are not working with NSE. “While it is not known if the Exchange has issued any order or communication to these people as per the SEBI order, they have stopped working with NSE," the source tells us. 
 
Last week, the market regulator, in a marathon five-order series in the co-location case, came down heavily on NSE and its senior officials, including former managing directors Ravi Narain and Chitra Ramakrishna.
 
Mr Lala from NSE is barred from holding any position with any market infrastructure intermediaries for two years. Mr Varanasi, NSE’s chief of business development is barred from holding positions in market intermediaries and associating with listed companies for three years in the dark fibre case. 
 
Nagendra Kumar SRVS, head of NSE’s membership department and Deviprasad Singh, head for Colo support at the Exchange, are also barred from holding any position for the next two years. In addition, SEBI has asked NSE to initiate an enquiry under its employees’ regulation against Mr Singh and submit the report within six months.
 
The colocation or algo scam came to light in mid-2015, when Moneylife wrote about it for the first time, following multiple letters from a whistleblower. For this, NSE had filed a defamation case against us. A single-judge had penalised NSE for Rs50 lakh for having filed a case against us. After filing an appeal against the order, NSE paid up the penalty. Meanwhile, in the wake of the scam, the top brass of NSE had to resign and a new management team took charge.
 
Officials from SEBI were not immediately available for comment on the SAT stay orders.  
 
Next hearing in both these matters is scheduled for 22 July 2019.
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COMMENTS

VASANT KULKARNI

2 weeks ago

THIS MUST BE STOPPED. IF THE REGULATORS FIGHT BETWEEN THEMSELVES ON THE ISSUE OF EGO RATHER THAN MERIT, YOU WILL NOT GET ANY JUSTICE. IT WILL BE CARRIED AWAY NOWHERE.

Mohan Krishnan

2 weeks ago

Judiciary is for the elites all over the world.
A good lawyer is one who knows the law well. But the best lawyer is one who knows the Judge well.

B. KRISHNAN

2 weeks ago

This is what happens in our country. Fraudsters and crooks can always get away by employing highly paid lawyers and get orders stayed or reversed permanently! I am reminded of the old saying "We are like that only".

Vaibhav Dhoka

2 weeks ago

After going through the write up one gets to know why other countries businessman avoid entry in India. Here no one can predict time in judiciary and quasi-judicial bodies. In present case it took 3 & 1/2 years for SEBI order which have put on hold by SAT within 4 days. The result is white callar crime goes down without punishment if one can manipulate the process. Finally ordinary investor or litigant never get justice from the system.

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