Sebi asks Embassy REIT to sack CEO Aravind Maiya for 'harming' Coffee Day investors

This follows the findings by the National Financial Reporting Authority (NFRA) of serious lapses and gross negligence leading to market fraud by Maiya
Image used for representative purposes
Image used for representative purposes(File photo | PTI)
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MUMBAI: Market regulator Sebi has ordered Embassy REIT’s manager to immediately sack its CEO Aravind Maiya for “harming ordinary investors” of Coffee Day and also appoint an interim CEO in his place.

This follows the findings by the National Financial Reporting Authority (NFRA) of serious lapses and gross negligence leading to market fraud by Maiya while leading the statutory auditors of Coffee Day Enterprises during FY19 as their engagement partner.

Embassy Office Parks Management Services is the manager of Embassy REIT, which is owned by the Embassy Group of Jitu Virwani, whose commercial tenants include IBM, Microsoft, Fidelity, TCS, Rolls Royce, Mercedes Benz, Yahoo, Goldman Sachs and Swiss Re. Embassy Office Parks REIT is the first listed REIT in the country and the largest office REIT in Asia by area.

In an interim order passed Monday, Sebi said Maiya was debarred for the maximum permissible period by the NFRA.

Sebi had passed an order on Coffee Day in January 2023, in which it noted that Rs 3,535 crore was transferred from Coffee Day’s subsidiaries to its related party, Mysore Amalgamated Coffee Estates, without obtaining the necessary approvals from the board of directors or the audit committee.

There were other violations too, such as the non-disclosure of material subsidiaries leading to glaring audit omissions, failure to maintain adequate internal controls over its finance functions, and failure to carry out adequate due diligence and exercise independent judgment, the Sebi order said.

All of this resulted in the diversion of Coffee Day’s funds for the benefit of promoter entities. During Sebi's investigations, it was revealed that the statutory auditor had a role in facilitating the fraud. Taking note of Sebi's observations, the NFRA started its investigations and passed an order in August 2024.

The NFRA order, according to Sebi, "brings out knowing violations of applicable audit norms which failed to flag a massive fraud at a listed company while Maiya was in a special position to discern given his professional assignment and domain knowledge."

The interim order passed by whole-time member Ashwani Bhatia further said, "The order also leads to a reasonable inference that Maiya failed to act in public interest. Instead, he acted in a manner that harmed ordinary investors and shareholders."

The order said, “The NFRA order raises sufficient doubt regarding Maiya’s competence, ethical behaviour and reputation to warrant disqualification under clause 3 of schedule II of the intermediaries regulations, at least till his name is cleared at an appellate forum, by way of overturning or stay of the NFRA order."

The market regulator's latest order also raises concerns around the conduct of Embassy REIT's manager, Embassy Office Parks Management Services.

The order notes that Sebi had communicated several times with Embassy REIT's manager that Maiya was ineligible to continue in his post. But it refused to replace him.

As the Sebi order notes, "It is a matter of concern that irrespective of e-mails, meetings and a specific instructions in this regard, the manager has tried all means to retain Maiya as CEO.”

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