India's largest real estate investment trust (RIET) Embassy Office Parks has said its CEO Aravind Maiya will step down following a show-cause notice by the Securities and Exchange Board of India (SEBI). In an exchange filing today, the Embassy says he will instead resume the role of head of strategy REIT. "We refer to the interim order cum show cause notice from SEBI dated November 04, 2024. While we are evaluating all options, in compliance with SEBI’s directive, Aravind Maiya will be stepping down as CEO of Embassy REIT. He will assume the role of Head of Strategy for Embassy REIT.”

Meanwhile, the REIT’s board and management will oversee all its operations and capital allocation to ensure normal business is not compromised. The company says the REIT’s management team will continue to be focused on delivering results. "Our focus remains on upholding the highest standards in governance and ensuring the continued success of Embassy REIT."

Amid the development, shares of Embassy Office Parks REIT are trading 1.68% down at Rs 365.64 on the BSE today.

Key highlights of the interim order:

1 SEBI says the Embassy must suspend Maiya from acting as its CEO and appoint an interim CEO with immediate effect until further directions. The decision to suspend Maiya came after the National Financial Reporting Authority (NFRA) this year imposed a 10-year debarment on him from audit activities after finding serious lapses in his professional conduct.

2) The regulator passed an order in January 2023 against Coffee Day Enterprises Ltd (CDEL) for the violations of SEBI rules as its probe revealed the diversion of funds by CDEL and its seven subsidiaries to a related entity of CDEL, Mysore Amalgamated Coffee Estates Ltd(MACEL), which was controlled by the father of CDEL’s chairman and promoter, late V.G. Siddhartha. It was found that Rs 3,535 crore was transferred from CDEL’s subsidiaries to its related party, MACEL, without obtaining the necessary approvals from the board or the audit committee.

3) The regulator had ruled the statutory auditor played a role in facilitating the fraud executed by CDEL, which was subsequently examined in detail by the National Financial Reporting Authority (NFRA). The NFRA order on August 19, 2024, found CDEL engagement partner Aravind Maiya and its engagement quality control reviewer Amit Somani demonstrated "serious lapses and absence of due diligence" as they failed to obtain sufficient audit evidence for audit opinion and showed gross negligence in verifying the business rationale of the "unusually high" amount of Rs 2,226 crore of loans or advances given to MACEL, a related party of CDEL.

4) The NFRA found that consolidated financial statements showed a pattern of diversion of funds to MACEL, which had minimal business activities, but the auditor failed to evaluate recoverability and other evident fraud risks, despite several red flags.

5) The NFRA found BSR & Associates LLP, CA Aravind Maiya and CA Amit Somani failed to discharge their professional duties while carrying out the audit of a listed company. It imposed a Rs 10 crore fine on BSR & Associates LLP; Rs 50 lakh on CA Aravind Maiya; and Rs 25 lakh on CA Amit Somani. In addition, CA Aravind Maiya was debarred for 10 years and Somani was debarred for 5 years from being appointed as an auditor or internal auditor.

6) After the NFRA order on August 19, 2024, SEBI on August 20, 2024, directed ATSL and EOPMSPL (Embassy Office) to assess the eligibility of Maiya in the light of the NFRA order. Further, SEBI on October 8, 2024, directed the Embassy Office to take appropriate action as Maiya did not meet the “fit and proper person” criteria.

7) On October 16, 2024, it was submitted that the NFRA order didn't impact the ‘fit and proper person’ status of Embassy REIT, and any action against its CEO, Maiya, was not warranted.

8. The latest order by Ashwini Bhatia, the whole-time member, SEBI, says: "I find that the NFRA Order of debarment on Mr. Aravind Maiya qualifies as a case serious enough to warrant effective enforcement of fit and proper criteria...Maiya was debarred...allowing Maiya to continue to helm the affairs of Embassy REIT as CEO may cause harm to investors, exposing their risk.”

9) The order says more than one month has passed since the NFRA order became effective vis-à-vis Maiya. Despite SEBI’s communication, the manager has refused to replace him. "It is a matter of concern that irrespective of a specific instruction, the Manager has tried all means to retain Maiya as CEO."

10) SEBI had found the complete abdication of responsibility and professional misconduct by the statutory auditors of CDEL, including Aravind Maiya who was an engagement partner for the audit, frankly begets the question, “Quis Custodiet Ipsos Custodes?”. "As to who will guard the guards themselves”.

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