PNB Housing Finance-Carlyle Deal: SEBI sends another letter, raises important questions - Explanation sought on THESE aspects | What shareholders must know

Securities and Exchange Board of India (SEBI) has sent another letter to PNB Housing Finance Company in a case related to its proposed deal with American private equity player Carlyle. In its letter to PNB Housing Finance, the market regulator has inquired why all shareholders were not given equal opportunities and why the common shareholders have been ignored.  

In its examination letter, SEBI has raised issues related to the corporate governance of the company.

"On the basis of material available on record, it is evident that the company has failed to comply with the principles governing disclosures and obligations of a listed entity as enshrined in the LODR Regulations and the Company Act, 2013," SEBI said in its letter. 

"Keeping in view the aforesaid apparent transgression of law, the company and the Board of Directors are called upon to explain as to why it should not be construed that the Directors have failed to discharge responsibilty cast upon them in law and consequently why appropriate actions in terms of law be not considered for such failure," the letter further reads.         

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The Sebi has sought explanation on these aspects:  

• Why has there been an attempt to overlook the  interests of common shareholders? 
• The regulator also raised corporate governance issues with the company. 

On 25 June 2021, Sebi sent a letter to the Independent Directors and the company. SEBI has questioned the PNB Housing Finance Company and the Directors over allegedly not following the share valuation rules. The market regulator has written a letter after it found that the company did not act in a responsible manner.  

This case is now before the Securities Appellate Tribunal (SAT) which recently gave relief to PNB Housing by allowing it to conduct its Extraordinary General Meeting (EGM). The company has got a relief with the SAT which allowed the mortgage lender to seek vote from shareholders on the Rs 4000 crore capital deal with Carlyle. 

PNB HFC has put its arguments before the SAT 

• It has said that the issue of preferential shares falls under the Companies Act and as not under the jurisdiction of SEBI. 
• The role of SEBI in ICDR regulations is limited to issue pricing 
• The Article of Association (AoA) of the company is not above the Companies Act and hence why is there so much of stress being given to it?    
• It has argued that SEBI took a decision without allowing the company to put its side. 
• It said that there were other companies too which have done this and wht the action has been taken only against PNB Housing Finance. 
• SAT will be hearing the arguments of SEBI on Tuesday.  

   Which other companies may face difficulties?    

- LIC HFC’s 2335 Cr worth of preferential shares are not as per the AoA. 
- On 19 July, there is an EGM where voting will likely take place on the proposal.   
- Barbeque Nation may also face issues with respect to its preferential shares as the situation is similar here as well.  
- Barbeque Nation is planning to raise Rs 100 cr with the issue of preferential shares.