In today’s Finshots, we tell you why SEBI suspended Aravind Maiya as the CEO of India’s first publicly listed REIT.

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The Story

Until this week, Aravind Maiya was the CEO of India’s first publicly listed Real Estate Investment Trust (REIT) — Embassy REIT.

For the uninitiated, REITs are companies that own, operate or finance income-generating commercial properties. And just like stocks, REITs can be listed on stock exchanges. Investors can buy shares in the REIT, letting them invest in real estate without actually having to buy or manage properties themselves.

And Embassy REIT, in particular, is backed by Embassy Group, a well-known real estate developer with a solid portfolio of commercial properties.

But just when everything seemed on track, market regulator SEBI (Securities and Exchange Board of India) threw in a curveball. A few days ago, it told the Embassy Office Parks Management Services (EOPMS), which manages Embassy REIT, to suspend Maiya immediately.¹ EOPMS followed through, and by the next day, he had resigned.

Here’s the thing, though. Maiya had only been in the role since July 2023.² His stint was short, and his exit was abrupt. So, what made SEBI step in and suspend him out of the blue, you ask?

Well, this actually has roots in his previous role as an auditor for Coffee Day Enterprises Ltd. (CDEL), the parent company behind Café Coffee Day, the OG of coffee chains. Maiya is a Chartered Accountant and, at the time, was a partner at BSR & Associates LLP, the firm responsible for auditing CDEL's finances. As an engagement partner, his job was to ensure the quality of the audit. He had to make sure that the audit team reviewed the company’s books so that everything was accurate, fair and in order.

Now, things took a tragic turn in 2019 when V.G. Siddhartha, the founder of CDEL, passed away by suicide. His death revealed significant financial mismanagement and mounting debts within the company. This triggered not one but two parallel investigations, one initiated by CDEL’s board and another by SEBI.³

And what did they find? Let’s just say it was massive ― around ₹3,500 crores worth of mismanagement.

As SEBI’s investigation went on, the National Financial Reporting Authority (NFRA) also got involved to look into the auditors' role in the scam. NFRA steps in when it comes to making sure companies like listed corporations, unlisted public companies and even banks or insurance companies follow the right accounting and auditing standards.

And as it dug deeper, more skeletons came out of the closet.⁴

It turned out that CDEL’s subsidiaries had been lending huge sums to a company called Mysore Amalgamated Coffee Estate Limited (MACEL), which was owned by the promoters of CDEL (majorly by V. G. Siddhartha). More than ₹3,500 crores flowed to MACEL. But here’s the catch. MACEL wasn’t a regular customer or vendor. So, what was CDEL doing with this money?

According to NFRA, the audit team, led by Maiya, barely looked into these highly suspicious transactions. And the situation only gets murkier from here.

Coffee Day’s financial statements listed loans as “repaid”, but they weren’t actually repaid. Instead of actual cash exchanges, the loans were cleared through book entries. Imagine someone writing you a cheque that’s never cashed but marking the debt as paid. NFRA said this showed a severe lack of professional scepticism from the auditors.

Then, there’s a trick called “evergreening”. It’s when a company moves the same money around within its subsidiaries, giving the illusion that loans are being repaid. In Coffee Day’s case, money flowed between various subsidiaries to make it seem like the company’s debt was under control. And yet again, the auditors didn’t raise any questions.

Now, if you looked at Coffee Day’s books, you’d see that they reported a modest profit of ₹28 crores for FY19. But NFRA discovered that they should’ve actually posted a loss of ₹47 crores. And this was due to one major inconsistency. Coffee Day recorded ₹75 crores of interest income from MACEL that wasn’t even in MACEL’s books! The auditors just accepted this, which left Coffee Day’s true financial health looking way rosier than it actually was.

In short, NFRA found that the auditors either missed, ignored or failed to challenge some glaring inconsistencies. Instead of verifying key documents or questioning what they saw in bank statements, they seemed to rely heavily on the management’s word.

In August 2024, NFRA finally closed its probe and came down hard on the auditors with serious penalties. They slapped BSR & Associates LLP with a ₹10 crore fine, Maiya ₹50 lakhs, and banned him from audits for ten years. Another senior auditor involved, Amit Somani, was fined ₹25 lakhs and banned for five years.

But the fallout didn’t end there.

With NFRA’s order in hand, SEBI began to question whether Maiya was still fit to serve as the CEO of Embassy REIT, one of India’s largest real estate investment trusts. SEBI’s concern came from the “fit and proper person” criteria. These standards are meant to make sure that leaders in financial institutions have the integrity, skills and professionalism needed to protect investors’ interests.

And when you’re managing close to ₹36,000 crores in assets, like Maiya was at Embassy REIT, there can be no room for error. SEBI believes that a leader in such a high-stakes role must have an impeccable record — no lapses, no doubts, no excuses.

So when SEBI looked back at Maiya’s track record, especially his failure to catch red flags at Coffee Day, it saw a clear issue. For SEBI, those missed warning signs meant Maiya didn’t meet the ‘fit and proper person’ standard that’s essential for handling public funds. And in the world of finance, that’s a line you just can’t cross.⁵

With Maiya suspended, SEBI’s intervention serves as a clear reminder that in finance, reputation is not just everything; it’s the only thing. And SEBI’s swift action sends a strong message — public trust is paramount, and even a single, serious lapse can end a career.

Until then…

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Story Sources: The Hindu [1]; Economic Times [2] [3] [5]; NFRA [4]

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