The controversy involving PNB Housing Finance’s deal with US private equity player Carlyle Group has been finally put to rest. PNB Housing Finance and 12 individuals have settled their case with market regulator SEBI, by paying a fine for the alleged violation of norms involving the preferential issue of shares.
The case relates to PNB Housing Finance making a corporate announcement in May 2021, about approving the preferential issue of shares and warrants to entities belonging to the Carlyle Group.
Valuation concern
After PNB Housing Finance issued shares to Carlyle, it was alleged that the preferential issue lacked a registered valuer’s report in accordance with the company’s Articles of Association (AoA) and also failed to take into account the interests of all the stakeholders by not accounting for control premium in the pricing of the preferential issue.
The preference issue of shares gave rise to a controversy as experts started questioning valuations of the shares to be offered to the investors. SEBI raised concerns and put the deal on hold and called for revaluation of the shares.
The deal, which could put Carlyle in the driver’s seat, was scrapped after a controversy but SEBI had already started its investigations. In addition, PNB Housing Finance and the individuals involved had allegedly failed to make adequate and timely disclosures to the stock exchanges about material information.
SAT’s split verdict
Subsequently, PNB Housing Finance approached the Securities Appellate Tribunal (SAT) which gave a split verdict in August 2021. Later, SEBI approached the Supreme Court in the matter. However, PNB Housing Finance, later, decided not to proceed with the preferential issue.
The PNB HFC and the 12 individuals, who were directors of the company, jointly paid ₹72.76 lakh towards settlement to SEBI. The amount includes ₹44.26 lakh as legal costs, a SEBI order said. The application was made by those who were being investigated by SEBI.
In the capital markets, listed companies and individuals can settle several violations by paying a penalty “without admitting or denying the guilt”.
Apart from PNB Housing Finance, those who settled the case with SEBI include Rajneesh Karnatak, Sunil Kaul, Neeraj Vyas, CH SS Mallikarjuna Rao, Chandrasekaran Ramakrishnan and Gita Nayyar. Other individuals are Sudarshan Sen, Nilesh S Vikamsey, Tejendra Mohan Bhasin, Hardayal Prasad, Ashwani Kumar Gupta and Kapil Modi.
In June 2021, SEBI, through separate letters to the company and 12 individuals had sought their explanations. In response, the applicants had filed for settlement of the case.