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Sebi notice says Chanda Kochhar violated the code of conduct

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The bank and Chanda Kochhar have to respond to Sebi’s show cause notice within 14 days.

India’s capital market regulator has said in a show cause notice that ICICI Bank’s chief executive Chanda Kochhar didn’t adhere to its code of conduct, which required the disclosure of any con ict of interest in the case involving Videocon Group and NuPower Renewables, a rm owned by her husband Deepak Kochhar.

The show cause notice also said that the bank indirectly violated the disclosure norms of the Securities and Exchange Board of India (Sebi) by not divulging this information, according to people with knowledge of the matter.

Sebi rules mandate all listed companies should have a code of conduct that have to be followed by directors and key managerial personnel. These cover con icts of interest, besides compliance with laws and regulations and ethical issues.

The code of conduct violation is the main allegation against Chanda Kochhar in the show cause notice that was sent late last week while that against ICICI pertains to the latter not making disclosures to the stock exchanges.

“These disclosures were considered material by Sebi. That’s why a show cause notice has been issued to both the parties,” said a person familiar with the development. ICICI Bank and Sebi didn’t respond to queries.

The bank and Chanda Kochhar have to respond to Sebi’s show cause notice within 14 days.

The bank’s code of conduct rules states that key managerial personnel should not “knowingly withhold information that raises ethical questions and bring such issues to the attention of senior management or ensure reporting as per the applicable whistle blower policy.”

The allegation is that Chanda Kochhar was on the bank’s credit committee that sanctioned a loan of Rs.3,250 crore to the Videocon NSE 3.80 % Group in 2012. Videocon’s promoter Venugopal Dhoot was one of the rst investors in NuPower Renewables promoted by Deepak Kochhar in 2008. Dhoot subsequently sold his stake but rms controlled by him or associates maintained a relationship with NuPower till early 2013 when control was finally transferred to a trust controlled by Deepak Kochhar for a small sum.

The lender and Chanda Kochhar have denied any wrongdoing.

ICICI Bank’s code of conduct rules states that actions involving conflict of interest should be reported to the group compliance officer.

“In order to avoid conflict of interest, executive officers and directors must disclose to the group compliance o icer any material transaction or relationship that reasonably could be expected to give rise to such a conflict, and the group compliance officer shall notify the board governance and remuneration committee of any such disclosure,” it states.

The bank’s board last week ordered an independent probe into allegations of con ict of interest and Chanda Kochhar’s dealings with some borrowers.

“None of the clarifications provided by the bank has satisfied any of the stakeholders including the regulators. Hence the board decided let a judicial person probe the allegations,” said a person familiar with the board’s decision. The board met on May 25, a day after the show cause notice was issued to Kochhar, to discuss the matter.

Lawyers said the question is whether the case is related to fraud or nondisclosure of information.

“If the loan approval transaction itself was fraudulent, it would be difficult for the Sebi proceedings to be settled, but if the issue was merely of nondisclosure of probable conflict in an otherwise valid and genuine transaction, the settlement may not be arduous,” said Sumit Agrawal, securities lawyer and ex- Sebi official.

Agrawal said both the bank and Chanda Kochhar could seek to settle the case through the consent mechanism.

“Under Sebi settlement regulations, noticees can seek settlement of any proceedings with regard to defaults of securities laws, including for any nondisclosure on the stock exchanges,” he said. “This can be done without admitting or denial of guilt, even before replying to the show cause notice.”