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| The Securities and Exchange Board of India has unearthed major irregularities at the Saurashtra Kutch Stock Exchange Securities Ltd. (SKSESL), one of the oldest bourses in the country. The irregularities include charges of allowing sub-broker who are not registered with the SEBI to trade in shares. The
report also observed that the sub-broker, who are not the members
and shareholders of SKSESL, were attending AGMs and were given
voting rights in contravention of the provision of the Companies
Act, 1956. The stock exchange also doesn't have a company secretary
which is mandatory under Companies Act, 1956. The report said
22 sub-brokers who did not have the base minimum capital (BMC)
of Rs. 2 lakh are still active. Three of these sub-brokers are,
incidentally, directors of SKSESL. SEBI also has found irregularities
on the margins and exposure limits front.
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| The Securities and Exchange Board of India (SEBI) is planning to make certification mandatory for employees and agents of various market intermediaries such as stock exchanges, brokers, depositories and merchant bankers. A SEBI committee, headed by Association of Mutual Fund in India (AMFI) Chairman Shri AP kurian, has said all employees who are directly interacting with investors should be mandatorily certified. All new employees are 20% of existing employees of merchant bankers need to get certification. Employees of stock exchanges working in investor grievances, arbitration and listing departments and distributors of IPOs should also be certified. The panel has set a deadline of December 31, 2003 for all existing employees and agents to get the prescribed certification. At
present, certification is mandatory for those working in the derivative
segment and also for mutual fund distributors. A SEBI discussion
paper said, "confidence of investors can be maintained and
enhanced by making provision for professional intermediation services.
The testing and certification will be done by agencies like NCFM
or any other suitable testing system, which will be accredited
by SEBI.
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Electronics and entertainment giant, Sony Corporation has said that it will abolish its Japanese audit system and set up a US - style corporate governance model, with an in - house committee structure using independent directors. In a move aimed at improving corporate governance, Sony Corporation become the first major Japanese company to formally announce the switch, made possible under a revision in Japan's commercial code, which is due to take effect in April 2003. Under the revision, Japanese firms will have the choice of adopting US - style governance by setting up an audit committee mostly comprising independent directors, although few companies have so far expressed an intention to make the switch. Sony's move comes at a time when corporate governance is gaining importance in Japan for frustrated investors, burned by three straight years of painful losses on Japan's feeble stock market. Pension funds, foreigners and individuals are adding to pressure on management teams as they replace banks and insurers, both of which are fast unloading shares they mutually hold in client firms, as stakeholders. Sony is among 34 Japanese firms publicly traded in NY. Analysts
cite weakness in the Japanese governance structure like lack
of independent directors and poor management oversight due to
the kensayaku auditing system, in which many auditors are former
employees.
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The report, which is expected to be submitted by Mid – February has also said that the levels of disclosure to be made by a company should be determined by the extent of public interest in that company. To this end, the report would recommend categorization of companies as those with direct public interest and indirect public interest. The group chaired by Institute of Company Secretaries of India's President, Shri Pawan Kumar Vijay, is expected to submit the report to the government in the second week of February. At
present, the Companies Act, 1956, under section 274 (1) (g), debars
directors of companies that have defaulted in repaying depositors
money from taking up new appointments. The report may also suggest
that companies should make disclosures in their annual reports
on the amount of loan extended to the directors.
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| Contrary to the government's announcement, the Serious Frauds Investigation Office (SFIO) to look into corporate frauds will have search and seizure power. The office, to be set up in the Department of Company Affairs (DCA), would have all the search seizure powers available to the department under the Companies Act, 1956. For other areas like income tax, the SFIO would have the search and seizure powers vested with the agency concerned. The SFIO has been conceived as a multi-disciplinary body to investigate corporate white-collar frauds and will be set up under the existing legal framework. It will investigate complex frauds having interdepartmental and multi-disciplinary ramifications, involving public interest in terms of monetary misappropriation or persons affected, and also when there is a possibility of investigation leading to an improvement in systems, law or procedures. Initially,
it will have two regional offices, for the northern and western
region. A committee of secretaries, headed by the cabinet secretary,
will also be set up to give general directions to the SFIO and
screen appointments at emoluments outside the government pay scale
to attract the best manpower.
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The government
has constituted a nine-member committee under the chairmanship
of Shri Naresh Chandra, former Indian Ambassador to the US, to
look into the liberalisation of regulatory norms and procedures
governing private limited companies and partnership firms. The
committee will look at all the clauses governing private limited
companies in the Companies Act, 1956, and the Indian partnership
Act, 1932. The department of company affairs has identified around
40 issues that need immediate attention. Among other things, the
committee will look into
The
other members of the committee include Rajiv Mehrishi, Joint Secretary
in DCA, corporate lawyer Shardul Shroff, ICICI Bank Executive
Director, Kalpana Morparia, ICAI Secretary Ashok Haldea, Company
Secretary Dr. S.D. Israni, Chartered Accountants Ashok Kapur,
C. R. Dua and N. V. Iyer. The committee has been set up at a time
when the business environment was changing and companies, particularly
the smaller ones, need flexibility in running business.
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Successful
corporate governance is the key to driving business forward in
the liberal and competitive business environment. This was one
of the highlights of a talk delivered by Mahindra & Mahindra
Ltd's Mr. Keshub Mahindra while addressing students at the Bombay
School of Business convocation.
According
to Mr. Mahindra the triple bottom line for any organisation
in the current environment is all about compounded growth in
profits, enchanced consciousness of the overall environment
along with heightened social responsibility. Capital tends to
spurn those who do not follow the rules of the game. Governance,
transparency and disclosures will always be the key to development
of business and the nation, he said. Accordingly, the way to
build effective corporate governance is to have a system of
checks, constant scrutiny, questioning and the vigilance of
investors. Also, along with maximising long-term shareholders
value. Mr Mahindra was of the view that it is equally important
to maximise returns to all other stakeholders. |
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The party is finally over for directors of
co-operative banks and their relatives. Alarmed by growing instances
of misappropriation of funds by directors of co-operative banks,
the Reserve Bank of India (RBI) has reduced the overall ceiling
for loans and advances to directors and their families from
10 % to 5 % of the total bank deposits.
According to sources, the RBI is believed to have taken this decision following a rash of co-operative bank failures in Gujarat, where in many cases directors of these banks were held responsible for the crisis. Earlier, co-operative banks were permitted by the RBI to give a maximum 10 % of the total deposits as secured and unsecured loans to the directors of the banks, their friends and relatives. It may be pointed out that the direction of the RBI has been
grossly violated by chairmen of four big scheduled Urban Co-operative
Banks in Gujarat, which have gone bust. They include Madhavpura
Mercantile Co-operative Bank, Charotar Nagrik Sahakari Bank,
General Co-operative Bank and Visnagar Nagrik Sahakari Bank.
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The UK seems to have devised just the right
instrument to tackle such serious crimes in the Serious Fraud
Office (SFO). SFO is also the focal point of contact for UK’s
arrangement with other countries, which seek mutual legal assistance.
Do we need a SFO in India? Of course, positively and urgently,
some academicians believe. It is reported that the CBI, our most
credible agency for criminal investigation, does not have in-house
expertise to the extent needed to fight serious white-collar crimes.
It is also true that we have today specialised agencies like Revenue Intelligence Enforcement Directorate, etc. But each guard its turf zealously. Instead of creating one more agency, all such agencies, which have the skills relevant for SFO’s functioning can be merged into the SFO with the CBI as its core. Fraud, which by the large covers all acts of deceits is defined in the Contract Act, 1872. The panel code of the 1860 did not include a fraudulent act or deceit into the straight jacket definition of an offence. Thus, in fraud or deceit a big portion is outside the criminal law paradigm. Fraudsters will design financial systems frauds involving serious fraud endangering the financial markets within the legal structure and with multi-disciplinary knowledge and precision and technology adaptation. No regulator can declare an act, howsoever arbitrary and dishonest it is, to be a criminal one. The regulator must have the power to search, seize and recover the products of foul play. Only Parliament can do it by a change of an Act. When such a fraud is serious, any investigation will need high knowledge and skill in regulatory framework, finance and accounting systems-management, financial market operations, fact finding, discovery, collation, systematisation, preservation, presentation of evidence and information technology.
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| © 2001 Academy of Corporate Governance |
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