Sucheta Dalal :Bark no bite
Sucheta Dalal

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Bark no bite  

Feb 26, 2007

M Damodaran, chairman of Sebi has perfected the art of using his speeches to warn industry about regulatory lapses. So it was hugely ironic that Deepak Parekh, chairman of Sebi’s Primary Market Advisory Committee used a similar public platform to remind the regulator it was all bark and no bite. Over 40 per cent of listed companies are in breach of Clause 49 regulations that require half their boards to consist of independent directors. This, a full year after the Sebi chief had threatened to delist companies that failed to comply with the rules. Forget about delisting, or imposing a fine, Sebi has not even bothered to embarrass non-compliant companies by publishing their names, as it once used to do with companies with the highest number of investor complaints against them. Parekh told his audience defaulting companies had made representations to Sebi saying it was difficult to find ‘independent directors’. This excuse couldn’t have been acceptable to Sebi as Damodaran himself inaugurated a website listing the profiles of potential independent directors in September 2005. The site lists 17,275 potential directors of which 12,294 profiles have been analysed. If companies still can’t find independent directors themselves, Sebi must consider nominating directors on companies that have breached the rules.

Reality check

Even without an officially sponsored India Shining campaign, the government is in danger of serious embarrassment through the self-appointed cheer leaders of a media house. Sure, the economy is doing well, but the constant drumbeat about India becoming the next super-power is beginning to jar. Worse, the parade of riches and mega deals only exaggerates the fact that very few benefits have percolated to the poor and the middle class. Can one celebrate the telecom revolution or global acquisitions forever while paying twice as much for dal-roti, electricity, housing, education and for crumbling infrastructure? Even the international media is urging a reality check. Fortune Magazine’s Cait Murphy is the latest to point out that, “India should put aside pride about its growing economy and concentrate on improving the lives of average citizen”. Murphy speaks for ordinary Indians when he says, “many of the worst features of the swadeshi (“self-reliance”) era remain intact, including an unreformed state banking sector; labor regulations that actively discourage hiring; abstruse land laws (and consequent lack of land titles); misshapen subsidies that hurt the poor; and corruption that is broad, deep and ubiquitous. Nothing useful is being done about any of this”. In fact, despite three years of high growth, most Indians are awaiting the Union budget with trepidation because it may only signal higher taxes, higher tariffs and more money doled out to populist schemes that goes straight into the pockets of corrupt politicians and government officials.


Sebi was hoping for an amendment to its statute allowing it to retain the fines and penalties that is levies in the soon-to-be-formed Investor Protection Fund (IPF). So far, the regulator used to credit this money to the Consolidated Fund of India (CFI). Sebi has argued that the pension fund authority is allowed to retain penalties levied by it in the Subscriber Education and Protection Fund and the same rules must apply to the IPF. If Sebi were allowed to manage the corpus, it could indeed use the interest earned more effectively for investor protection activities. However, we learn that the government is not in agreement and wants the money to be credited to the CFI and then withdrawn as needed. The Finance Ministry had little option. After all, it ignored protests and pleas by the Ministry of Company Affairs and insisted that unclaimed corporate dividends pooled under the Investor Education and Protection Fund (IEPF) must first be credited to the CFI. It cannot have a different yardstick for the capital market regulator. Funnily, stock exchanges, which are only self-regulatory bodies, have full control over their investor protection funds, subject only to Sebi supervision. These are pools of over Rs 125 crore each in case of the two national bourses.

Strange marketing

The Telecom Regulatory Authority of India (Trai), which is listening carefully to harried consumers these days, will be interested in this new marketing development. Every few days, direct selling agents of Hutch, Tata Indicom and others walk into offices, claiming to offer services or concessions that the companies neither put on their websites nor offer directly to their customers. A Tata Indicom DSA offered to reduce the bills for a Mumbai office, without clarifying how it worked. An aggressive follow-up with the Tata corporate office revealed that the DSA was lying, in order to be heard. He was only mandated to sell more connections. Last week another DSA representing Hutch was offering to make intra-office calls free. He walked out in a huff when asked why the offer hadn’t come directly from the company.
-- Sucheta Dalal