Sucheta Dalal :Giving teeth to FEMA (27 October 2002)
Sucheta Dalal

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Giving teeth to FEMA (27 October 2002)  

Having succumbed to industry pressure and diluted the draconian Foreign Exchange Regulation Act (FERA), the government has realised that it probably went too far in defanging the Enforcement Directorate (ED). The ED suddenly found that foreign exchange violators wouldn’t even bother to show up when summoned under the toothless FEMA (Foreign Exchange Management Act). The government has checked its rulebooks and found that it does indeed have some residual powers to arrest emanating from the provisions of the Civil Procedure Code. Earlier this month it issued a circular saying that if people did not respond to summons, investigating officers may have ‘recourse to the procedure of arrest’ under the Code of Civil Procedure in order to complete investigations within the period stipulated under FEMA.

They can also impose a penalty of upto Rs 2 lakh (under Sec 13 of FEMA) after adjudication, for failure to appear before the ED. The impact of the circular is already visible in the renewed enthusiasm among ED officials and increased respect for their summons.

Silver ratings

THE rating agency CARE downgraded Silverline Technologies from PR1+ (highest rating) to PR2 (high investment grade) on September 27. The high rating had earlier helped the company place Rs 341 million of non-convertible debentures (NCD) with banks.

Curiously, the rating has not helped Silverline pay salaries to its employees or avoid a default on international obligations. CARE describes Silverline’s survival battle as little problems arising out of the reduction in income, decline in profitability and cash flow mismatch because of its inability to collect payments quickly.

In fact, Silverline’s salary cheques have been bouncing since March 2002 and its subsidiary SeraNova had defaulted on a $10 million loan payable to Intelligroup Inc (which is being litigated in New Jersey) even when it enjoyed the highest credit rating.

After the downgrade, it has defaulted on another $ 40 million line of credit from HSBC Bank—which is also under litigation. Details of the litigation are available on the Net. However, CARE not only seems unaware of these but thinks that Silverline is in a position to raise $35 million through a GDR/ADR issue.

Maybe it is time the capital-market regulator began to take a hard look at the excessive optimism of rating agencies that misleads the investing public. Silverline’s stock price indicates that the market has caught on to what’s happening. The scrip has been falling continuously since August 7 when it traded at Rs 27.45; it was down to Rs 15.65 on Friday.

Incidentally, its highest traded price was Rs 1,376 in late February 2000.

Too little, too late?

THE decision to halve telephone charges for internet access at night by the two telecom PSUs, MTNL and BSNL is too little and three years too late.

Nearly three years ago, MTNL’s dynamic former chairman S. Rajgopalan had agreed to increase the pulse rate for calls and reduce telephone charges from the extortionate Rs 27 per hour. He planned to increase the pulse to four minutes initially and said he would consider going up to 10 minutes over time.

However, Rajgopalan was given a rough time before he retired and probably didn’t find the time to implement the move. Three years later, MTNL has halved access during the night. This means that students and children who could benefit from the Net will hardly benefit from the nocturnal rate cut.

So, instead of increasing dedicated phone connections for internet usage, cybercafes (which offer lower rates by splicing a leased line connection) will continue to get the student business. And companies providing cable connections will also thrive at the expense of the telephone companies. So much for Mahajan’s dynamism and intervention.

Cyberspace Infosys

ARVIND Johri, promoter of Cyberspace Infosys who floated a stock broking firm called Century Finance to manipulate his own share prices is in the news again. Ironically, it is Bombay Stock Exchange’s (BSE) refusal to settle various disputes over the stock manipulation that is causing agitation among investors, especially, a highly reputed Pune-based educational trust.

What makes it more interesting is that the NSE has ruled on the Cyberspace/Century Finance issue a year ago and released funds to investors from the trade guarantee fund, but the BSE is not only dragging its feet, but even a discreet nudge from the regulator and even more powerful sources have not made a difference. The BSE board is now expected to discuss the issue again on the 29th of this month.

-- Sucheta Dalal