Sucheta Dalal :Under pressure (8 June 2003)
Sucheta Dalal

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Under pressure (8 June 2003)  

It was inevitable. The Department of Company Affairs (DCA), which shocked business and industry with a set of amendments that could truly protect investors, is under enormous pressure. Corporate India and its battery of paid retainers—lawyers, chartered accountants and industry associations—are lobbying hard to dilute the Companies Act (Amendment) Bill 2003 and politicians are lending them support.

They want to get rid of provisions that will stop companies from diverting funds or impose stricter penalties for corporate crimes. All the critics make the same points. They sneer at the many drafting errors and try to retain status quo by insisting that the new provisions are impossible to implement.

Curiously, nobody suggests ways to make the provisions workable while meeting the intentions behind the proposed changes. Clearly, DCA needs support. Investor associations who usually rail against the government and complain about losing their money need to write to the DCA to prevent a dilution of the Bill.

Fighting helps

A couple of years ago, Arvind Mills’ restructuring package caused a huge controversy when Commerz Bank and Bank of Nova Scotia filed a criminal case against ICICI Bank and its top executives for breach of trust.

ICICI Bank, the securities trustee for a $75 million loan from a set of foreign banks, entered into a sale and lease back arrangement with Arvind Mills covering the very same properties without informing the foreign banks. What is worse, it tried to force on them a restructuring package that would make them write-off a large chunk of their loans.

Commerz Bank took its fight against ICICI Bank all the way to the Supreme Court, even though it closed down most of its Indian operations, while Arvind Mills had embarked on a remarkable turnaround following restructuring. In the process, the criminal complaint was quietly dropped.

We now learn that the case was dropped only because Commerz Bank alone was paid back its dues almost in full. Clearly, it sometimes pays to put up a fight.

Private placement

With glowing research reports like those of I-Sec (an arm of ICICI Bank), extolling the spectacular turnaround of Arvind Mills, the scrip price shot up from around Rs 18 at the beginning of April to over Rs 37. But no sooner has the price moved up, than the promoters were out selling 1.2 crore of their equity at around Rs 36 a share.

Curiously, while the large sale of promoters’ equity took place with utmost secrecy on Tuesday and Wednesday, all of Arvind’s lenders were clueless. ICICI Bank professed not to know that Arvind’s promoters were cashing their stake (as soon as the stock price rose) and so did another leading financial institution.

They also claimed ignorance about debts that Arvind’s promoters are reportedly paying back by selling part of their stake. At the same time, the FIs didn’t seem particularly perturbed either by the deal or by their ignorance, which suggests that Arvind did nothing without lenders’ consent. But it leaves the retail shareholder flummoxed and ignorant.

CAS Control

Another example of how cable service providers are using the Conditional Access System (CAS) to tighten their hold over customers is the new idea of renting set top boxes for a monthly fee of as little as Rs 10 to Rs 30.

What seems like a customer-friendly move may not be so friendly in implementation. Will consumers be forced to accept the set top box in order to get access to the free channels too? Will the rent be like a perpetual toll collected by cable operators after the box has been fully paid for? And having provided the box, who do consumers complain to if the cable operator forces a minimum monthly bill down their throat? The government is making no attempt to answer these questions. The Minister seems to say that if the monthly bill remains around Rs 200 then nobody should dare to complain.

Inviting the babu

With the merger talks between Infrastructure Leasing & Financial Services (IL&FS) and Infrastructure Development Finance Company (IDFC) gathering momentum, U.K.Sinha, joint secretary from finance ministry has been appointed to the board of IL&FS. Curiously, the government has a holding in IDFC and not IL&FS, so why appoint a babu on the latter’s board?

Our sources say that the IL&FS management made the unusual move of asking the finance ministry to appoint a nominee. The ministry responded with alacrity. Is this an indicator that government is not only driving the merger but will also have a big say in the running of the merged entity?

-- Sucheta Dalal