The Securities & Exchange Board of India (Sebi) has in recent days red-flagged the corporate practices of two big market players. On January 10, Sebi had imposed a ban on Price Waterhouse (PW) for two years in respect of taking fresh clients and issuing audit certificates. The penalty was imposed on PW for being complicit with erstwhile Satyam Computer Services and its chairman B Ramalinga Raju. The latter had admitted in 2009 to financial malpractices and cooking up the company’s books.
The audit firm has appealed against the order before the Securities Appellate Tribunal (SAT), but the court has refused to stay the Sebi order.
In a second instance, Sebi has asked Infosys to show cause why action should not be taken for its controversial `17-crore payout to its former chief financial officer Rajiv Bansal. In 2015, Infosys had acquired an offshore company, Panaya, for $200 million. The deal came into question as heavily overvalued, following which the CFO Bansal exited with a huge severance payout. Former chairman Narayana Murthy hinted this was ‘hush’ money. All this led to a Sebi investigation in February 2017, which limped along so far.
In its fresh notice, Sebi has said the payout was not in consonance with the company’s remuneration policy and Infosys had failed to notify the stock exchanges. Sebi is currently examining consent terms submitted by Infosys.
Quick Decisions
The new urgency to chase defaulting companies by the new Sebi chairman, Ajay Tyagi, is welcome. Soon after Tyagi took over in March last year, Sebi passed an order barring Reliance Industries (RIL) and 12 other companies from derivatives trading for one year. It also directed RIL to ‘disgorge’ `447 crore it had accumulated through unauthorised F&O trading in RIL securities.
However, these cases should not have been allowed to drag in the first place. The RIL case had been pending for 10 years. The PW case relating to PW had been taken up nine years ago in 2009.
The charter entrusted to Sebi by the Sebi Act, 1992 is a combination of a market regulator framing rules for efficient functioning of the securities market; and a watchdog to safeguard investor interest. As the regulations governing the securities markets have become crystallised over the years, it is the ‘watchdog’ role that has become more prominent.
There is huge public interest and public money at stake. Take the case of Infosys. At the end of the third quarter of this financial year, the $10 billion generating company had 9.36 lakh shareholders who held as much as 86.4 percent of the company’s equity. The original promoter group holds only 12.9 per cent. Infosys is as ‘public’ as it gets.
G Mahalingam, whole-time Member of Sebi who wrote the order against RIL put Sebi’s role in perspective: “I am inclined to pass certain directions against the noticees in order to protect the interest of the investors and re-instil their faith in the regulatory system.”
Falling Short
Sebi has recently notified a slew of reforms aimed at improving governance. These include clearing trading of both stocks and commodities on a single exchange, increasing the net worth of credit rating agencies (CRAs) to `25 crore and regulating cross-holdings in both CRAs as well as mutual funds (MFs) to prevent conflict of interest detrimental to investors. However, the expected edict to make it compulsory for companies to immediately report bank loan defaults to bourses did not happen.
Interestingly, this norm was to be brought in last August, and then too it was deferred. This is a serious compromise of investor interests. Sebi seems to have leaned to the side of the big corporates who argue that disclosing technical or small defaults creates huge market volatility in respect of their shares. Instead, the markets regulator should be insisting on prompt disclosure of defaults as it is vital information for the investor on the financial health of a company.
Finally, it is in public interest that the market regulator process complaints in a time-bound manner. There are lakhs of small investors’ complaints that flood the regulator. Sebi as a watchdog needs to isolate and attend to all serious complaints. Thereafter, once it initiates an investigation, the report and penalty imposed has to be completed in a time span notified in law. There are too many high profile cases, as we have seen above, that meander for years; sometimes it is deliberate, other times dependent on the passion of the person who heads Sebi. Justice delayed is justice denied, as they say.
gurbir@newindianexpress.com