| Hony.
Editor |
| Dr.
Bindi Mehta
Professor
& Chairperson (Research & Publications)
Narsee Monjee Institute of Management Studies
(Deemed University) |
|
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Ministry
against diluting Sebi`s regulatory powers |
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The ministry of finance has made it clear to the ministry of company
affairs (MCA) that it would not like to compromise on the role
of the Securities and Exchange Board of India (Sebi) as a market
regulator.
This is in response to the J J Irani Committee’s view that the
rule making power for accessing capital from Indian markets should
be vested with the central government.
The department of economic affairs (DEA) has sent this comment
in response to the J J Irani committee recommendations on proposed
amendment to the Company’s Act. DEA is a department under the
ministry of finance which governs the capital market watchdog
Sebi.
The DEA note was prepared with inputs sent by the market regulator.
According to sources close to development, Sebi felt that if the
company law is amended to have central government as the ultimate
rule making body for capital markets, it will nullify the role
of Sebi in developing the capital markets.
Sebi, in its note to the DEA, has objected to any plans to amend
two sections — Section 77AF and Section 55A — of the Companies
Act which encompass a major part of capital market operations.
These empower the Sebi to regulate norms related to buyback of
securities from the market under Section 77AF and public issue,
allotment, trading of securities and payment of dividend etc under
Section 55A.
These sections also govern the listing agreement clause which
empowers Sebi to enforce corporate governance rules under Clause
49. Otherwise, there is no explicit law governing the role of
Sebi to enforce corporate governance norms.
The J J Irani committee was set up by the ministry of company
affairs to propose changes to the Companies Act.
The Sebi note to the DEA has also mentioned that the joint parliamentary
committee was also in favour of Sebi being the regulator on pricing
and penalising capital market issues.
Various operations at present governed by Sebi include registration
of the prospectus of listed companies, specification of disclosure
on issue of securities, administration and filing of accounts,
notice of scheme of mergers and acquisitions, etc.
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SEBI
firm on independent directors |
| In
a rebuff to the intense lobbying by the industry, market regulator
SEBI has said firm no to any extension of the deadline for India
Inc to fill up half of their boardrooms with independent directors
(IDs) by the end of this year.
The
Securities and Exchange Board of India has asked the industry
to speed up search for IDs and not to waste their precious time
in trying to torpedo the Clause 49 requirement of the Listing
Agreement, well-informed sources told UNI.
In its attempts to make the Indian listed companies accountable
to widely-dispersed shareholders, the market watchdog wants IDs
to constitute at least 50 per cent of a board if a firm has an
executive chairman.
It had already suspended this enforcement in April 2005 granting
more time to industry, which took the plea, that adequate number
of competent IDs was difficult to find.
However, SEBI Chairman M Damodaran had warned the business leaders
earlier in May that the time was ''ticking'' for them since violation
of Clause 49 would attract heavy penalties. Apparently, the industry
argument about scarcity of professionals capable of sitting on
the boards did not cut much ice with the regulator.
SEBI, sources said, is also not worried over a different view,
which emerged from the recommendations of the J J Irani Committee.
The Irani Committee has advised the government to let the corporate
honchos manage with the boards, which have one-third of their
strength through IDs. It is a different matter that the professional
IDs would be difficult to find and those in circulation would
be in great demand.
While the promoter holdings in India ranges from 35 and 50 per
cent, it is merely eight to 10 per cent in the US. Analysts wonder
in this context whether it would be advisable for India to follow
the western model where the question of management perks is much
more relevant given the low holdings by the promoters.
Contrary to the US, the Indian promoter with sizeable holdings
in the company, which he manages as well, would be interested
to enhance the shareholders' value because such a thing would
be in his own interest.
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Lacklustre
report on amending Sebi Act |
Yet another
report by an expert panel commissioned by the Securities and
Exchange Board of India (Sebi) to review the Sebi Act, 1992,
the very legislation that created Sebi, was released last week.
The report is important, more for what it fails to do than for
what it does. Either the object of this review was never intended
to be a serious one, or the mandate given to the expert committee
was restricted to what Sebi had wanted it to review.
In the last quarter of 2004, Sebi had circulated a suggestion
paper containing the changes Sebi would like to see in the Sebi
Act (Without Contempt, dated December 20, 2004: Sebi seeks to
review its governing law).
The report of the expert committee does not go anywhere further
than the original suggestion paper from Sebi. A few of Sebi’s
suggestions have been endorsed, a few have just been sympathised
with, and a bunch of others have been rejected.
In the process, several serious problems with the Sebi Act that
are crying for attention have not even been dealt with.
The areas that crave for attention in the Sebi Act include the
multiple jeopardy mechanism whereby the every offence can be
penalised with up to three forms of civil penalty and also criminal
prosecution, the sweeping powers to issue directions without
even conducting any inquiry, and important terms and concepts
in the Sebi Act remaining undefined, and being left to definition
by Sebi in subordinate legislation.
While these are issues under the Sebi Act, there is a whole
host of issues to be dealt with under each of the regulations
notified under the Sebi Act.
These include the exclusion of legal representation in enquiry
proceedings (against the teeth of a Gujarat High Court holding
such provisions to be unconstitutional), and drafting lacunae
in the insider trading regulations that lead to severe hardship.
And, we are not even talking of specialised problems such as
the last set of amendments to the take-over code, and the impracticality
of the delisting guidelines.
The report does not make any incisive impact on many of these
issues.
But a few recommendations that are noteworthy include an amendment
to the Sebi Act to enable initiation of winding up proceedings
by Sebi akin to the Reserve Bank of India Act, and a preferential
payment to investors over all other debts of a market intermediary
akin to the provisions of the Banking Regulation Act.
An important development is the rejection of Sebi's desire to
compel lawyers to part with privileged information about their
clients (yes, first principles of constitutional law were deliberated).
The committee has rejected yet another request from Sebi to
have powers to directly freeze bank accounts without the supervision
of a judicial magistrate.
Similarly, Sebi's request for powers to conduct search and seizure
without a magistrate's oversight has also been rejected.
It is interesting that since the conferment of these powers
two years ago, there is still no known case of Sebi's efforts
to use these powers being thwarted due to magisterial supervision.
The committee has recommended increasing the age of members
of the SAT from 62 to 65, but has also proposed to reduce the
cooling-off period for Sebi's own executive directors getting
elevated to the SAT from two years to one year.
The committee has not recommended an express provision that
any such SAT member ought to keep away from proceedings involving
files on which he was involved as an officer of Sebi.
The committee has proposed to create an appellate "review
commission" within Sebi to review enquiry and adjudication
orders, with appeals from orders of the commission lying before
SAT i.e. one more internal layer.
In short, this is a lacklustre report. An opportunity to make
an impact with the law has been lost.
(Reported
by Somasekhar Sundaresan, a partner of JSA, Advocates &
Solicitors. The views expressed are personal. Published in Business
Standard, September 20, 2005)
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SEBI
Notifies Ten Stock Exchanges For Corporatisation |
The
Securities and Exchange Board of India (SEBI), on being satisfied
that it would be in the interest of the trade and also in public
interest, has notified the Corporatisation and Demutualisation
schemes of ten stock exchanges.
The stock
exchhanges earmarked for corporatisation and demutualisation
are - Calcutta Stock Exchange (CSE), Delhi Stock Exchange (DSE),
Madras Stock Exchange (MSE), Pune Stock Exchange (PSE), Cochin
Stock Exchange Limited (CoSE), Madhya Pradesh Stock Exchange
(MPSE), Gauhati Stock Exchange (GSE), Uttar Pradesh Stock Exchange
(UPSE), Hyderabad Stock Exchange (HySE) and Bangalore Stock
Exchange Limited (BgSE).
The exchanges
would have to take effective steps to corporatise and demutualise
within the due dates specified in their respective schemes.
SEBI has
already notified the BSE (Corporatisation and Demutualisation)
Scheme, 2005, vide order dated May 20. BSE has taken effective
steps to comply with the various activities specified in the
scheme. The emerging corporate entity, namely the Bombay Stock
Exchange Limited, has commenced business and operations as successor
of the BSE in terms of the scheme with effect from August 19.
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Company
Law Tribunals to Come Up |
All the
16 benches of the proposed National Company Law Tribunals are
also to come up in 16 cities. They will all be under its jurisdiction.
While the
National Company Law Appellate Tribunal will be located in New
Delhi, the benches of the National Company Law Tribunals will
be set up in New Delhi, Ahmedabad (Gujarat), Bangalore(Karnataka),
Chennai (Tamil Nadu), Hyderabad(Andhra Pradesh), Indore(Madhya
Pradesh), Jaipur(Rajasthan), Kolkata(West Bengal), Mumbai (Maharashtra),
Allahabad(Uttar Pradesh) and Noida. The New Delhi bench of the
National Company Law Tribunal will be the Principal Bench. The
NOIDA Bench will cater to Delhi, NOIDA and the National Capital
Region (NCR).
In the second
phase, the benches of the National Company Law Tribunal will
come up at Guwahati (Assam), Patna(Bihar), Chandigarh, Kochi(Kerala)
and Cuttack(Orissa).
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Now,
a site to find independent directors |
Amid the
mad rush in India Inc to find independent directors before the
SEBI mandated deadline, Prime Database on Wednesday unveiled
a website that lists names of persons who could help companies
frame better strategies.
The website 'www.Primedirectors.Com' was launched by SEBI Chairman
M Damodaran, who has made it clear that all companies must ensure
that their boards comprise at least 50 per cent of independent
directors by December 31.
The website has been sponsored by country's two leading bourses
NSE and BSE, along with leading industry chamber CII, as part
of the corporate governance initiative, Prime Database said
in a release.
The website comes at a time when there is an urgency among companies
to meet the Clause-49 of the Listing Agreement which mandates
companies to appoint independent directors comprising at least
50 per cent of the board size.
Failing this, the companies will attract punitive action from
regulator SEBI.
There are about 9,000 listed companies and an estimate puts
the requirement for at least 30,000 independent directors by
the year end.
While India Inc is facing an acute problem of finding the adequate
number of independent directors, there are a army of professionals
who would be eager to take up such posts.
The new website would enable professionals to enroll for the
role of directors, while companies would get a data bank for
choosing their directors.
The website has prescribed some entry norms like education qualification,
work experience, default records among others.
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SEBI
Not In Favour Of Empowering Board On Individual Directors' Appointment |
The Securities
and Exchange Board of India (SEBI) is not in favour of giving
full authority to the board of directors or the management of
companies in nominating independent directors on the board.
Addressing
a summit on Corporate Governance, oranised by the Confederation
of Indian Industries (CII) today, SEBI Chairman M Damodaran
said the appointment of independent directors should not be
left to the company.
"If
we left this to the board, it will appoint a director suited
for them... As a regulator, we cannot agree with that,"
said Mr Damodaran.
He said
SEBI was currently in the process of consultation with the industry
associations and also individual firms to collect their opinions
on the role of independent directors and their say in the corporate
decision-making process.
"We
are consulting with the industry and the companies can put their
suggestions and sentiments before December 31," he said.
In this
context, Mr Damodaran said that the corporate houses should
create a sense of belonging among the independent directors
in the day to day affairs of the companies.
The companies
should bring in certain elements of sentiments about the role
of independent directors before December 31, he added.
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© 2005 Academy of Corporate Governance |
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