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Vol
4: Issue No.1 : January, 2004 |
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| The SEBI had directed the stock exchanges on August 26, to amend clause 49 of the Listing Agreement requiring all listed companies to reconstitute their board and audit committees with certain prescribed number of independent directors. It has also prescribed qualifications for a director to be considered independent. The SEBI-directed changes to the Listing Agreement are to take effect from April 1, 2004 while the SEC-approved changes in the listing manuals of the New York Stock Exchange (NYSE) and Nasdaq to strengthen corporate governance have to be implemented before October 31, 2004. The
new Clause 49 is very similar to the new corporate governance
rules of the NYSE and Nasdaq listing manuals. For instance, as
provided by the Clause 49 of the Listing Agreement, the SEC-approved
rules will require all companies listed on NYSE and Nasdaq to
comply with provisions on independence of directors on the board
and audit committees. |
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| SEBI has come out with a new model listing agreement for debt issues. This follows its recent circular asking companies to list their debt issues on stock exchanges. The new model norms will require all listed companies to make disclosures as per the Companies Act and sign a separate listing agreement with stock exchanges. SEBI has come out with new norms to curb the private placement market, which is largely unregulated. The norms are intended to spur the development of a secondary market for corporate bonds. Bond
issuers will have to agree to comply with clearing and settlement
norms of exchanges. They are also required to fix and notify exchanges
at least 21 days in advance of the date on and from which the
interest on debentures and bonds and their redemption payments
will be payable. The issuer will have to furnish to the exchanges,
after each AGM, details of the top 50 holders of each class of
security along with particulars such as the number of securities
held and address of each holder. They will also have to obtain
‘in-principle’ approval for listing from the exchange before issuing
further securities. |
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The Narayana Murthy Committee on corporate governance, set up by SEBI, has firmed up amendments to Clause 49 of the Listing Agreement. Final discussions on the proposed amendments were held at a meeting on November 17, 2003, in Mumbai and the report is expected to be made public next month. The Committee proposes amendments with regard to disclosures relating to the utilization of IPO proceeds, deletion of the clause concerning contingent liability and rationalization of clauses linked with independent directors. According to sources, the current provisions in the Clause 49 require companies to disclose use of IPO proceeds without specifying any time limit. The proposed amendment wants such disclosure to be made to the audit committee only till such time that IPO proceeds have been fully spent. Provisions of the listing agreement dealing with disclosures about contingent liabilities are proposed to be deleted. This is being done to prevent duplication. Such disclosures already covered by Schedule VI of the Companies Act. A slew of
measures rationalizing provisions related with independent directors
have also been proposed. As far as tenure of independent directors
is concerned, a limit of nine years is proposed. If a person
continues to be a director beyond that term, he/she will be
deemed to be a non-executive director. The amendments do not
propose any term limit for non-executive directors. |
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The ombudsman scheme formulated by SEBI to redress investor grievances swiftly is to be operationlised soon with the government set to approve it. The ombudsman scheme was mooted by SEBI earlier this year and notified a couple of months ago as the SEBI (ombudsman) Regulations. The operationalising of the office of the ombudsman is expected shortly with the government considering setting up of ombudsmen in several regional centers on the lines of the banking industry. The Joint Parliamentary Committee which probed the ’01 securities scam had also recommended steps to help investors to claim damages, compensation and interest. The office of the ombudsman will be located in Mumbai. The SEBI ombudsman will handle grievances of investors relating to non-receipt of refund orders, allotment letters for public issue of securities / units of mutual funds or collective investment schemes, non-receipt of share certificates, unit certificates, debenture certificates, interest on debentures, delayed refund, non-transfer of securities and any grievance relating to public rights or bonus issues or non-receipt of letter for take-over, buy-back of shares or de-listing of shares. SEBI reckons that an alternative redressal mechanism which is cheap, efficient, fast and informal is in order. Its ombudsman regulations say that an investor can approach the ombudsman only after written representation to a listed company or intermediary is rejected or when the investor does not receive any response from the company or intermediary within a month. The SEBI board is empowered to appoint one or more ombudsmen. The selection panel for appointing ombudsmen will include a retired high court judge and an expert on financial markets besides a representative of SEBI not below the rank of an executive director. SEBI
has said that the present mechanism of either suspending or canceling
the registration of intermediaries or imposition of a monetary
penalty does not fully redress the grievance of investors. Hence
the need to have an ombudsman. |
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A self-regulatory organisation, called the Finance Industry Development Council (FIDC), for overseeing the interests of the non-banking financial companies was announced on Friday at the 19th National Convention of the Federation of Indian Hire Purchase Associations (FIHPA), hosted by the Kolkata based Hire Purchase and Lease Association. The FIDC,
once fully operational, will act as the voice of the NBFC sector
from a single platform and represent the industry in dialogues
with the Reserve Bank of India and the Government on the various
issues plaguing the sector. The council will be headquartered
in Mumbai, with full-fledged regional chapters in the major
metros. Once the registration process was through, preparation
of memorandum and articles of association, code of conduct,
membership structure etc., would be completed within the next
two or three months. He said the FIDC should start functioning
by February 2004. The first meeting of the core group, comprising
heads of the three main industry associations, was held on September
27, 2003. Mr. Mahesh Thakkar, Executive Director of ALFS, said
a lot of stress would be laid on the self-regulatory aspect
to make the body a true success. He said the majority membership
would comprise the small outfits whose interests would have
to be fully protected. |
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The Government’s approval will soon become mandatory for the issuance of sweat equity by unlisted companies beyond a specified level. The Department of Company Affairs (DCA) proposes to impose this restriction in cases where unlisted companies are looking at issuing such shares aggregating more than 15 per cent of the total paid-up equity capital in a year or shares of the value of Rs. 5 crore, whichever is higher. The restriction is to be defined in the proposed rules for unlisted companies for issuance of sweat equity shares. ‘Sweat equity shares’ as per the Companies Act, are equity shares issued by a company to employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions. (Source: Business Line-Dec 4, 2003) |
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The government has permitted Indian Companies
to issue equity shares against all types of external commercial
borrowings (ECBs).
Earlier in July, the Government had permitted partial conversion of ECBs for those loans that have already become due for repayment. Today’s announcement permits Indian companies to “issue equity shares against all ECBs (excluding those deemed as ECBs) received in convertible foreign currency, subject to meeting all tax liabilities and procedures.” The types of ECBs that are eligible for such conversion include commercial bank loans, buyer’s credit, suppliers’ credit, securitised instruments, credit form official export credit agencies, commercial borrowings from the private sector window of multilateral financial institutions, as well as investment by foreign institutional investors in dedicated debt funds. (Source:
Business Line-Dec 4, 2003)
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The Institute of Company Secretaries of India
(ICSI) has mooted the concept of ‘Securities Audit,’ given the
need for a mechanism to ensure better compliance of statutory
provisions relating to securities by a company.
The institute has evolved the ‘Securities management and compliances’ model to allow companies to function in conformity with various laws. “Once the securities have come into existence, the transactions in the securities are also government by various acts, rules and regulations. This concept is a step towards introducing “Securities Audit” in companies,” ICSI President, Mr. Pavan Kumar Vijay, said. “With the changing times and enhanced responsibility of company secretaries, the responsibility of secretarial function has also increased. This encompasses compliance of laws applicable to a company as well as adherence to good corporate governance practices and thus, wider scope of secretarial audit,” Mr Vijay pointed out. The objective behind securities management is to assess compliance by an issuer company of securities related laws and capital market regulations. And the objective behind secretarial audit is to report on the compliance of applicable laws and corporate governance norms by a company. “The institute is in the process of developing a module on secretarial audit including background information, standard format of secretarial audit report, guidance notes, and checklists,” the President said. The audit includes issuance of both debt and equity securities by companies. Further, the concept of secretarial audit comes at a time when the capital market regulator, Securities & Exchange Board of India (SEBI), has become more vigilant and disclosure norms are being tightened. Further, any initial public offering (IPOs) has to undergo severe scrutiny before they tap the market, he said. Elaborating on the broad coverage of secretarial audit, Mr. Vijay said, “it would cover the corporate governance norms, board independence, board systems and procedures, transparency and disclosures compliances, consistent shareholders value enhancements, stakeholders value, corporate social responsibility and sustainability.” Secretarial audit will not only help the company but also the independent directors since the responsibility of whether the information furnished by a company is correct or not will lie with the company secretary, the President stated. In fact, the institute proposes to submit the concept paper on Securities Management and Companies and Secretarial Audit to the capital market regulator (Source: Business Line, Dec 22, 2003)
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| © 2001 Academy of Corporate Governance |
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