Yes Bank: Uttam Agarwal Alleges Insider Trading, Seeks SEBI Probe
Moneylife Digital Team 13 January 2020
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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Ramesh Poapt
3 years ago
hope not other Satyam!
3 years 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?
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