'Satyam is not an aberration'

If he can break the jinx of the Companies Act that successive governments have tried — and failed — to modernise for over a decade now, Minister for Corporate Affairs Salman Khurshid would go down in history as the one who truly liberalised Indian Inc. from the red tape of stifling rules and meaningless approvals.

Salman Khurshid
Salman Khurshid

If he can break the jinx of the Companies Act that successive governments have tried — and failed — to modernise for over a decade now, Minister for Corporate Affairs Salman Khurshid would go down in history as the one who truly liberalised Indian Inc. from the red tape of stifling rules and meaningless approvals.

In his other role, that of the Minister of Minority Affairs, Khurshid has an ace up his sleeve over the sensitive issue of reservation for Muslims in the private sector. He discussed all these and other issues facing Corporate India today in an interview. Excerpts:

You’ve reintroduced the Companies Amendment Bill in Parliament. What’s your strategy for its quick passage through the Standing Committee?
It’ll get through now. The Standing Committees have not been announced yet. Once the chairman is announced, we will request for a fast track. The Parliamentary Affairs Minister has promised that he will speak with the Speaker about giving a timeline to the committee for giving its report.

There are complaints that the ministry’s approvals for revisions in salaries of managers at many companies are pending for nearly 12 months now...
I don’t let a file sit here for even a day. I get something, we clear it immediately. Our attitude is let’s-try-and-clear-as-many-aspossible because as soon as the Bill is passed all this will not come to us—it will finally be the shareholders’ decision.

Have you made any additions to the Bill in the aftermath of the Satyam fraud?
No. Most of the Satyam-type critical issues had been anticipated and are a part of the Bill. It’s a vast improvement on the current system. The main concern is the situation in which class suits couldn’t be filed in this country like they were elsewhere—in the US, for instance. That’s the best way to protect the investor after something has gone wrong. The general intent of the Bill is to ensure that nothing goes wrong, though not by imposing unreasonable restrictions on the functioning of companies, but by ensuring that there is complete transparency and disclosures so that minority shareholders can take informed decisions on what’s good for their company. If the shareholders take an informed decision then their right to claim against the company also gets restricted, but they must get that right.

At the same time, you can’t keep looking away where there has been repeated failure and wrong-doing. So I think the Bill has a very sensible balance of all the issues that emerge from the Satyam scandal. It will be both a convenience and an adequate supervision of how companies function.

The Bill takes the company law framework to a rules-based system where you won’t have to keep going back to Parliament for changes, but bureaucrats could get greater discretionary powers...
You’ll not make the rules everytime something comes in front of you, but periodically you can make the rules. The idea is that whatever you do must be clearly known in advance. The whole Satyam backdrop… what is it that they should have known, done… there is ambiguity, openendedness about it. That causes a great deal of discomfort amongst independent directors . We now want to ensure that they know exactly what is required of them. We’re defining their role very clearly now.

We are also thinking (it’s not in the Bill right now) whether we should have a simple system of training as a sort of pre-qualification before someone becomes an independent director. And then, an actual disclosure statement that you are now familiar with your duties and functions and are conscious of what you are supposed to do and are responsible and accountable for it. Of course, nobody is looking for centralised certification by the Government of India. Shareholders are the best judges and they should be free to decide who should be their independent directors (the Bill proposes changes in the process of their appointment), but there can be minimum qualifications.

How far has the Satyam investigation gone?
The Satyam investigation is now for all practical purposes complete. The CBI has sought permission to file a second charge sheet. We got our preliminary reports sometime ago and the final report will come soon. The Enforcement Directorate and Internal Revenue continue to look at the siphoning of assets/money. Those things are not necessary for completion of our prosecution. We are all set and ready and are waiting for the high court to nominate a fast track process. Our case is against the seven people who are primarily responsible for what went wrong. The charges we are concerned with are entirely on violations of company law. Cheating and forgery charges are coming from the CBI through the court. The penalties that these would attract would be ten years and beyond imprisonment. As far as our case are concerned, there will be fines, custodial sanctions etc. Our case is a very strong case.

Satyam’s auditors seemed to have slept through a mismatch between the company’s reserves and debt position...
It’s not just incompetence. It’s more than incompetence. That’s why both the auditors of Satyam are getting the rap in a criminal court. On the basis of statutory disclosures and filing companies make we will now like to build an early warning system so that if something is going wrong in the company we can spot it. The early warning system, a report on which is coming to me soon, would catch this Satyam kind of thing.

Are more stringent requirements of company auditors likely to be laid down?
We’re still talking to the Institute of Chartered Accountants. I’m sure they will agree that something has to be done but once the consultations are over we will take a view. I do not agree with their view that Satyam is an aberration. It’s a systemic problem.

One of the two auditors of Satyam has pending serious charges against him for more than six years. Clearly, speedy action from ICAI may well have prevented Satyam...
This is flagged for a response.

What’s your vision for the Serious Fraud Investigation Office (SFIO), its real place in company law and Corporate India?
They can’t be a parallel police or investigative agency like the CBI. SFIO has a specialised responsibility of investigating violation of company law that lead to criminal culpability as they have in the case of Satyam. They won’t look at the IPC-type violations. It will need specialised expertise such as forensic audits, reading documents and tracking violations. For this, we have now given them adequate personnel. When Satyam happened we had a manpower problem which we no longer have. People had to be moved out from here to Andhra Pradesh and track down the trail across the globe. The issues about the investigative procedures and powers are being resolved through the new Bill that will grant the SFIO powers to search and seize. In critical moments, you have to be able to get your hands on the documents. In the case of Satyam for everything you needed a court order. So they are now lean and mean and extremely competent.

As the minorities’ minister what is the government’s stand on reservations in the private sector?
For the private sector even Dalit reservation has not been accepted, so you can hardly accept minority reservation. I’m not for or against it. Somebody could do it if they wanted to do it. I won’t oppose it. But I’m not going to force companies for something against which there will be a massive reaction. So what we have done for Dalits is to get the private sector in partnership with the public sector for affirmative action. So do it for minorities too. The corporate sector has started sending six-monthly reports to the Prime Minister’s Office on this.