SEBI Orders Embassy REIT to Supend CEO Aravind Maiya

The Securities and Exchange Board of India (SEBI) has directed Embassy Office Parks Management Services, the manager of Embassy Real Estate Investment Trust (REIT), to suspend its Chief Executive Officer, Aravind Maiya, for failing to meet the “fit and proper” criteria. This action was taken on Monday after a thorough review of his professional conduct.

SEBI has also instructed Embassy REIT to appoint an interim CEO with immediate effect to ensure the continued smooth functioning of the organization. The market regulator’s decision comes after the National Financial Reporting Authority (NFRA) debarred Maiya for ten years, imposing a penalty of Rs 50 lakh for “professional misconduct” related to the audit of Coffee Day Enterprises. The misconduct allegedly led to the concealment of a large-scale fraud. The NFRA issued this order on August 19, 2024.

Embassy REIT, which was listed on the stock exchanges in 2019, manages nearly Rs 40,000 crore of unit holders’ money. Maiya had been appointed as CEO of the REIT’s manager in July 2023. However, SEBI observed that the company had failed to take appropriate action to address Maiya’s disqualification based on the “fit and proper” criteria. SEBI further noted that the company had shown “strong reluctance” to comply with the necessary regulations.

In its interim order, SEBI emphasized that the manager of Embassy REIT was obligated to replace Maiya within 30 days of his disqualification. SEBI whole-time member Ashwani Bhatia underlined that the regulator is well within its rights to ensure Maiya adheres to his debarment. He stressed that it would be inappropriate for an individual disqualified due to professional misconduct to take up leadership roles in other positions that demand high levels of competence and integrity in the financial sector.

The NFRA’s order found Maiya guilty of gross negligence, failure in due diligence, and failure to disclose known misstatements during the Coffee Day audit. SEBI had previously noted that over Rs 3,535 crore was transferred from Coffee Day’s accounts to its subsidiaries and related parties without the necessary approvals. In light of this, SEBI’s order stated that allowing a person disqualified by NFRA to take on significant roles in the financial field would undermine the credibility of regulatory frameworks.

SEBI’s move to take action against a REIT manager comes at a time when there has been increased scrutiny over regulations governing the REIT ecosystem. The Congress and US-based short-seller Hindenburg Research have raised concerns over the regulatory intent and transparency in the development of India’s REIT market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.