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Vol 3: Issue No.12 : December, 2003
NATIONAL NEWS

Hony. Editor
Dr. Bindi Mehta
(Director, Research at ICSI - CCRT, Formerly, Chief economist, CRISIL






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National Events
Independent Directors in for a ‘Tough Job’

Power does not come without responsibility and an independent director in a listed company will have to take up responsibility for select areas of the company’s operations, and will accordingly have to be held liable for any lapses therein directly relating to those specific areas. While these directors have to be made accountable, they should also be adequately compensated.

Mr. S. Balasubramanian, Chairman, Company Law Board, said that suggestions from various bodies were still coming in for making suitable additions/omissions in the Companies (Amendment) Bill, 2003 now pending before Parliament.

On the future of the CLB, he said it would eventually be abolished and the powers would be transferred to the National Company Law Tribunal, which would be the adjudicating body. He, however, tended to agree that there might have to be some kind of backup for the independent directors with regard to prosecution under various civil and criminal laws, to retain their interest in the corporate sector. He also defended the clause in the Bill that provides that in case of default in respect of issue of debenture or payment of debenture interest, every debenture trustee would be punishable with imprisonment or fine.

 
 
   
Corporate Governance Norms to Apply to NBFCs, PDs, FIs Too

The Reserve Bank of India (RBI) announced that corporate governance practices for banks as suggested by the Ganguly Committee and the Securities Exchange Board of India (SEBI) committee will be extended to primary dealers, non-bank finance companies and other financial institutions, as appropriate.

The RBI will also seek a harmonization between the approaches with regard to corporate governance of banks as suggested by the Ganguly Committee and the SEBI committee. The harmonization will be done through a consultative process, RBI said. The Ganguly Committee had made several recommendations covering constitution and functioning of boards, access to information to board members, audit committees, internal control and financial reporting. Similar recommendations have also been made by the SEBI Committee for banks listed in stock exchanges.



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Companies Bill Sent Back to DCA For Further Dilution

The dilution proposed by the DCA and taken to the Cabinet for clearance would not have provided much relief to the corporate sector – the clause on retirement for directors at 75 was not dropped altogether, and the provision for independent directors was to be re-phrased to say nearly 50% should be such directors. Of course, the provision reserving a seat for women on the board of directors was proposed to be dropped completely.

The DCA had moved over 40 changes, which included 12 significant changes to the 174-clause bill. The corporate sector had been lobbying hard since the introduction of the bill in the Rajya Sabha in May this year for significant dilution of several provisions it described as “draconian”.

The provision on retirement age for directors was proposed to be diluted to allow corporate patriarchs to continue sitting on the board. But they were not to be allowed appointments as whole-time director, nominee director or independent director. This means they could sit in the capacity of part-time non-executive director or as chairman emeritus.

On companies being allowed multiple layers of arms and several investment companies, the DCA has made no change at all. Only a clarification was to be added that foreign companies having an arm in India would be allowed another level of subsidiary to be at par with the Indian companies. One subsidiary of the foreign company – being a company incorporated in another country – would be treated as a holding company for this purpose. The clause, on pre-certification of documents by a company secretary prior to the filing with the ROC, was also proposed to be diluted.

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SEBI makes Listing compulsory for bonds of all public companies

The booming Rs.80,000 crore privately placed corporate bond market is set to change. According to a SEBI circular issued last month, bond issuers will have to make disclosures similar to public issues, appoint a debenture trustee and follow a separate listing agreement that will be introduced.

In the case of unlisted placements, SEBI-regulated entities subscribing to such papers will have to furnish the investment details to SEBI. The issuers, however, will not have to take prior approval of SEBI. Instead, it could make the disclosures on the website of stock exchange where the security would be listed. Besides, all securities will have to be in the demat form. Significantly, SEBI has further said that all listed companies coming with a bond issue will have to compulsorily list it. This, in turn, means that such companies cannot go for unlisted private placement.

The move could be a setback to the market where millions of negotiated deals between corporates, banks, institutions and primary dealers have remained out of the public domain. RBI had strongly advocated the new norms to instill greater transparency in the debt market. Close to 80% of the corporate (or non-SLR) bond issues are in the form of private placements and bought out deals, which never get reported in the wholesale debt market segment of NSE.

The move assumes significance given the growing importance of the debt market. The reported volumes in the debt market, on several days this year has been more than the combined equity traders in BSE and NSE. Now all such issuances must have a debenture redemption trustee and a reserve that may be governed by SEBI’s debenture trustee rules.
India Fares Better on Global Corruption Index

India fared better on the Global Corruption Index (GCI), ranking 83rd, while Asia fared rather poorly. Many nations in the Asian region are ranked among the worst in the world for graft and dishonesty. India recorded 2.8 in the annual survey of the anti-graft watchdog Transparency International, to rank 83rd. It shared this spot with Malawi and Romania.

Singapore, Hong Kong and Japan were among Asia’s few leading lights – the report placed them among the top 21 of the least corrupt nations. A total of 133 nations were polled. According to the GCI report, Bangladesh was the world’s most corrupt nation. Holding this slot for the third successive year, it scored 1.3 out of 10, edging out Nigeria. Myanmar ranked 129 and Indonesia 122. Both these countries also had rankings of less than 2 out of 10. According to Transparency International, this implies that corruption is “pervasive” in those countries. A score of 10 means a country is perceived to be “highly clean” while zero means “highly corrupt”. Vietnam was next on the list of corrupt nations in Asia. It ranked 100 in the world, sharing the spot with Guatemala, Kazakhstan and Moldova.


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Government sets up body to handle corporate governance issues

To provide a platform to deliberate on issues relating to good corporate governance as key to sustainable wealth creation, the Government has taken a step forward in setting-up National Foundation for Corporate Governance (NFCG).

“The registration of the Foundation has been done. The grants envisaged for the Trust will be released shortly,” official sources told. In September this year, the Union Cabinet had given its nod for setting up NFCG as a Trust. It had also extended Rs. 10 crore to it as grant-in-aid.

Apart from the one-time contribution of Rs 10 crore, NFCG will receive contributions from premier industry associations, philanthropic organizations and international agencies and bodies. While the Confederation of Indian Industry has confirmed a contribution of Rs 3 crore, two other professional institutes – Institute of Chartered Accountants of India and Institute of Company Secretaries of India – have committed Rs 1 crore each.

Managing the trust will be a three-tier body comprising Governing Council, a Board of Trustees and an Executive Directorate. “We are in the propose of finalizing the programmes to be taken up by NFCG. Besides, a website will also be launched for the purpose,” sources said.

On whether the Foundation will be taking inputs form the Investor Protection & Education Fund (IE&PF), a corpus used for investor awareness programmes, official sources said, “The two will definitely work in synergy.” Elaborating further, sources revealed, “issues such as capacity building and hence promoting more investor associations, will be a common activity between the two bodies.”

Among the broad objectives of NFCG will be to provide research and training in the field of corporate governance. It would also be a source of financial or any other assistance for activities aimed at promoting corporate governance, including research and training. Besides, the US-based Global Corporate Governance Forum will also be supporting the India-centric activities taken up by the various agencies.

Meanwhile, IE&PF on its part is setting up a prime database called “Investor Watchout” on the lines of a similar concept in Europe, that will help educate the investors and list the names of erring companies.

 (Source: Business Line - 18 Nov, 2003)


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