Yes Bank: Uttam Agarwal Alleges Insider Trading, Seeks SEBI Probe
Uttam Prakash Agarwal, who last week resigned as independent director of Yes Bank Ltd, has filed a complaint with Securities and Exchange Board of India (SEBI) seeking a probe into illegal gains made by a certain set of people in giving misleading information to the markets and the people on potential investors, including Citax Holdings and Erwin Singh Braich. On Friday, Yes Bank rejected mysterious investor Erwin Singh Braich's $1.2 billion investment offer but said that it will raise Rs10,000 crore by issuing securities. The Bank on Friday also said it will take up Citax Holdings, and Citax Investment Group's investment offers in the next board meeting.
 
Though Mr Agarwal, who recently resigned as the independent director from the Yes Bank board and head of the audit committee, has not spelt it out, it implies to insider-trading, which needs to be investigated by SEBI. "...enquire or investigate the resultant illegal gains made by certain set of people on account of non-compliances, false or misleading news and fix responsibility with appropriate fines, punishment and such other measures, which will ensure that regulations are complied with, both in letter and spirit," he says in his letter. 
 
The letter sent to SEBI chairman Ajay Tyagi and whole-time member G Mahalingam, by Mr Agarwal, former president of the Institute of Chartered Accountants of India (ICAI), reveals chain of events when Yes Bank was evaluating potential investors. 
 
The copy of the letter is also marked to Reserve Bank of India (RBI) governor Shaktikanta Das, Injeti Srinivas, secretary of the ministry of corporate affairs (MCA), Vikram Limaye, managing director (MD) and chief executive officer (CEO) of the National Stock Exchange (NSE) and Ashish Chauhan, MD and CEO of the Bombay Stock Exchange (BSE).

Mr Agarwal has asked SEBI to investigate whether the process followed by Yes Bank's managing director (MD) and chief executive (CEO) Ravneet Gill had been law-compliant. "The empowered committee at its meeting held on 7 January 2020 also reviewed presentations made by three independent experts, namely, IDFC Securities, Ambit Capital and Avendus Capital, all of which reaffirmed the concerns raised by the undersigned.
 
"Despite, the management led by CEO has attempted to mislead and convened a meeting of board of directors on 10 January 2020 with false hope of any such potential capital raising transactions. Regulatory authorities should intervene and issue directions of not holding any board meetings, till genuine and legit investors (in compliance with the RBI norms), are presented to the regulatory authorities," he says in the letter dated 9 January 2020.
   
According to the complaint, the management of Yes Bank did not share names of potential investors with the board members and, when it did, in the form of Citax and Braich, these were not binding term-sheets devoid of details and without any due diligence from legal experts or investment bank.
 
Following pressure from the board members, Mr Agarwal alleges, Mr Gill downloaded from the Internet a copy of balance sheet of Citax with paid-up capital of only 100 pounds at which the aghast members insisted that no such misleading information on investors putting in billions of dollars should be shared with the public or the regulatory authorities.
 
"In addition to the two term sheets, CEO and MD tabled three more single-page letters from different investors, namely Rekha Jhunjunwala (undated), Ward and Ferry and Discovery Capital. They were expressions of interest (EoIs) and not commitment," he added.
 
Mr Agarwal says, "Stating that it will find out interest of investors in the UK based on a letter issued by Prime Securities (previously banned by SEBI) was a clear ploy by the MD and CEO to salvage commitments made to the board and given to the public." 
 
In view of the management's failure to oversee capital raising, the "board set up an empowered committee to suggest alternative and corrective ways to deal with the situation, which was caused by the inefficiencies and failure on the part of the CEO," he says.
 
Mr Agarwal also suggested a forensic audit to investigate dissemination of misleading information, but no such action was taken.
 
Last week Mr Agarwal had resigned as an independent director and chairman of the audit committee of the board of Yes Bank, while making certain observations on the governance of the Bank.
 
While confirming the resignation, Yes Bank had said, its board was scheduled to review fit and proper status of Mr Agarwal, but before that he tendered resignation.
 
"...the Bank was reviewing the 'fit and proper' status of Mr Agarwal as directed by the Reserve Bank of India. In this respect, the Bank had obtained legal opinions from eminent jurists. These opinions were to be considered by the nomination and remuneration committee of the board (NRC) and the board of the Bank in their meetings scheduled for 10 January 2020. However, prior to the commencement of the proceedings of these meetings, the Bank received the resignation of Mr Agarwal."
 
Interestingly, in November 2018, Hemindra Hazari, a well-known research analyst, had cautioned about appointment of Mr Agarwal as independent director of Yes Bank. In his blog post, Mr Hazari, had stated, "The immediate appointment of Mr Agarwal, a former president of the Institute of Chartered Accountants (ICAI), as an independent director and probable future head of the (Yes) bank's audit committee may not be the most appropriate choice. The concerned individual has dabbled in politics and failed to be elected from a suburb of Mumbai in a 2014 Maharashtra state election as a representative of a political party. Appointing chartered accountants-cum-politicians may not be the best way to restore confidence in the bank at such a critical stage."
 
 
"While it is commonplace for corporate chiefs to cultivate the ruling party, it is not the normal practice for private sector banks, or private corporate sector entities in general, to nominate politicians as directors, as this adds an additional dimension of political risk. Investors should be cautious regarding Mr Agarwal, a chartered accountant-cum-politician, replacing Vasant Gujarathi on the audit committee. Indeed, Mr Agarwal may be even be appointed as the chairman of this important sub-committee of the board," Mr Hazari had written.
 
Last week, Yes Bank, in a regulatory filing had said it received an updated proposal from Braich but the "board has decided not to proceed with the offer" after last month postponing a decision on his binding offer of $1.2 billion – 60% of the total capital the Bank aimed to raise.
 
IANS had also reported last month that Mr Braich and his Hong-Kong-based SPGP fund was not even able to pay up Rs2 crore for earnest money in the Reid & Taylor bid under NCLT earlier this year. The SPGP has also been involved in a few lawsuits, including one against the Canadian government. 
 
Yes Bank, however, after its five-hour long board meet on Friday, said that it is willing to "favourably consider the offer of $500 Million of CitaxHoldings and Citax Investment Group and the final decision regarding allotment to follow in the next board meeting…" as "the relevant conditions precedent could not be completed as on date."
 
At 2.51pm Monday, Yes Bank was trading 5.6% down at Rs42.30 on the BSE, while the 30-share Sensex was marginally up at 41,812.
 
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    COMMENTS

    Ramesh Poapt

    2 weeks ago

    hope not other Satyam!

    SM

    2 weeks ago

    SM1 second ago Can Moneylife please probe and throw some light on the corruption charges and other controversies during Mr. Uttam Agarwal’s stint as the ICAI president?

    RBI Allows Video-based KYC for Regulated Entities like Banks, NBFCs
    With a view to leveraging the digital channels for customer identification process (CIP) by regulated entities (REs) like banks and other lenders, the Reserve Bank of India (RBI) has decided to permit video-based customer identification process (V-CIP) as a consent based alternate method of establishing the customer’s identity, for customer onboarding.
     
    According to a notification issued by RBI, the REs, including banks and non-banking finance companies (NBFCs) among others, are required to capture a clear image of permanent account number (PAN) card displayed by the customer during the process, except in cases where the customer has e-PAN. The REs need to verify the PAN details from the issuing authority, the central bank says.
     
    Due to the amendments in Prevention of Money-laundering (Maintenance of Records) Rules, “digital KYC has been defined in Section 3 as capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the RE as per the provisions contained in the Act.” 
     
    Further, to make sure that the customer was present in India during the V-CIP process, RBI has asked REs to capture live location or geotagging. 
     
    RBI, however specified that it would be responsibility of banks and other lenders regulated by it, to make sure that the photo of the customer in her Aadhaar or PAN marches with the video and identification details matches with details provided by the customer.
     
    Most importantly, the notification from RBI makes it easy for customers who have address different from what is mentioned on her Aadhaar given to the RE. “Where a customer has provided her Aadhaar number for identification and wants to provide a current address, different from the address as per the identity information available in the Central Identities Data Repository (CIDR), she may give a self-declaration to that effect to the regulated entity,” RBI says.
     
    Banking correspondents (BCs) are also allowed to help banks in V-CIP process, however the ultimate responsibility for customer due diligence would be with the bank. RBI says, “BCs can facilitate the process only at the customer end and, the official at the other end of V-CIP interaction should necessarily be a bank official. Banks shall maintain the details of the BC assisting the customer, where services of BCs are utilised.” 
     
    The central bank has asked RE to ensure that the process is a seamless, real-time, secured, end-to-end encrypted audio-visual interaction with the customer and the quality of the communication is adequate to allow identification of the customer beyond doubt. RE shall carry out the liveliness check in order to guard against spoofing and such other fraudulent manipulations.
     
    To ensure security, robustness and end to end encryption, the REs are mandated to carry out software and security audit and validation of the V-CIP application before rolling it out.
     
    RBI specifies that the audio-visual interaction should be triggered from the domain of the RE itself, and not from third party service provider, if any. “The V-CIP process shall be operated by officials specifically trained for this purpose. The activity log along with the credentials of the official performing the V-CIP shall be preserved. REs shall ensure that the video recording is stored in a safe and secure manner and bears the date and time stamp,” it added.
     
    The central bank says, REs can take assistance of latest available technology, including artificial intelligence (AI) and face matching technologies, to ensure the integrity of the process as well as the information furnished by the customer. However, it says, the responsibility of customer identification would rest with the RE.
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    SM

    2 weeks ago

    Can Moneylife please probe and throw some light on the corruption charges and other controversies during Mr. Uttam Agarwal’s stint as the ICAI president?

    Kerala, With Highest Literacy and Huge NRI Investments, At Last Get Going With RERA
    Kerala, often described as Gods own country with highest literacy and huge investment by non-resident Indians (NRIs) in real estate, has finally set up the Real Estate Regulatory Authority (RERA) in the state. On 1 January 2020, state chief minister Pinarayi Vijayan inaugurated Kerala RERA and presented registration certificates to builders and developers as well as real estate agents. Mr Vijayan also released an emblem for Kerala RERA (K-RERA). 
     
    Surprisingly, Kerala was one among the eight states and union territories that was lagging behind in setting up a real estate appellate tribunal and one among the six states that had failed to operationalise websites under the provision of RERA. This is despite the fact that Kerala is seen among the most progressive states with the highest literacy levels, where non-resident Indians pour huge amoumts of money every year.
     
    K-RERA had issued a notice in the last week of December 2019 directing that all promoters, builders and developers shall not advertise, market, book, sell or offer to sell apartments, plots of buildings from 1 January 2020 without obtaining registration from K-RERA if the apartment has more than eight units or the land proposed to be developed is more than 500 meter. 
     
    A similar direction was issued to real estate agents that they shall not enable sale or purchase of plot, apartment or building without obtaining registration from K-RERA under relevant sections.
     
    The Real Estate Regulatory Act makes it compulsory for the state-level RERAs to design a web portal for registration and filing of complaints within one year of its formation. In Kerala, the authority hopes to have it ready in six months. Until then, complaints and the registration process will be handled physically by a paper process.
     
    The recent Supreme Court order to demolish five apartments in Kochi for violation of coastal regulation zone (CRZ) had put the focus back on the need for a fast-tracking regulatory authority in the southern state. 
     
    Though RERA had remained a non-starter in Kerala, the RERA office set up at Thiruvananthapuram continued to receive numerous complaints and enquiries about on-going and upcoming housing projects. 
     
     
    A major chunk of the complaints pertained to delayed project completion. Nevertheless, the RERA office was not able to take any steps as the full authority was not yet formed till last week. 
     
    The Kerala Government initially set up RERA in 2016 based on state legislation and even appointed a former chief town planner as its chairman. 
     
    When the Centre later introduced the RERA Act, the state’s RERA could not function as new rules had to be framed. The process was progressing at a snail’s pace until recently. Mr Kurian was appointed the authority chairman in October 2019 and lawyer Preetha Menon was appointed as one of its members. 
     
    The Kerala high court had recently issued an order disallowing the state government from appointing PH Kurian as chairman of RERA as the petitioner had alleged that Kurian had been in the selection committee for choosing chairperson and members of RERA. 
     
    The government was forced to seek the advocate general’s legal opinion in the wake of the HC order. The Kerala government received the advocate general’s nod to constitute the real estate regulatory authority in the state with former revenue and housing additional chief secretary PH Kurian as chairperson.  
     
    Mr Kurian has added that the authority also has the power to register suo motu case and investigate against the projects which violate the law. He stated that RERA registration is mandatory for availing loans from the banks to buy flats or villas. 
     
    Real estate agents also should be registered with the authority. The condition is that only projects that are in sync with existing laws and regulations can be registered. Builders are also prevented from advertising or marketing unregistered projects. The ads should stick to project specifics submitted during the registration.
     
    By January end, the authority will appoint an adjudicating officer (retired district judge) who will handle compensation claims. The authority will also follow MahaRERA’s initiative and form conciliation forums for grievance redressal through dialogue. 
     
    The conciliation forums would help in speedy resolution of disputes between developers and buyers. There will also be an appellate tribunal for handling appeals on K-RERA decisions.
     
    The Real Estate (Regulation and Development) Act, 2016, empowers state RERAs to grade real estate projects and promoters. However, Mr Kurian said that since RERA was just starting off in Kerala, this would not happen immediately. He said “It can be done in another five years or so once the activities of K-RERA have stabilised. It is a transparent process of grading based on criteria such as timely delivery of projects”.
     
    K-RERA has urged potential buyers to book apartments only in RERA-registered projects and deal exclusively with RERA-registered real estate agents. 
     
    When asked about RERA’s insistence on carpet area while the new building rules have completely done away with the term and replaced it with built up area, Kurian said that RERA can recommend to the state government to incorporate necessary changes.
     
    Mr Kurien said “If needed, we can ask state government to restore carpet area in building rules. The difference in rules may not be a constraint for the smooth functioning of RERA”.
     
    He also said that K-RERA is planning to conduct more and more awareness sessions across the state.
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