-1.jpg "Salman Khurshid")
Minister of State for Corporate Affairs Salman Khurshid speaks about the new Companies Bill and other investor-related issues.
Which features in the Companies Bill are important for investors?
There has been an attempt to make the Companies Bill, 2008, as unambiguous and explicit as possible. There is a need to expedite judicial verdict, so we have included class action suits in the new bill. This will help retail investors fight for their rights. At present, small investors are not able to get compensation in cases of fraud due to the absence of any such law.
There has been a debate on empowering investors after the Satyam fraud. Is there a way such cases can be prevented?
A seven-member internal committee headed by an additional secretary from the Ministry of Corporate Affairs has been working to evolve a mechanism, which will help in the early detection of corporate frauds. The idea is to come up with a set of parameters to identify the symptoms of fraud in its initial stage so that it doesn’t escalate into a bigger debacle. The ministry will also look into major events in the past, which showed indications of irregularities.
Many small investors continue to be cheated by small-time finance firms, plantation companies and builders, among others. Is there a mechanism to monitor such companies?
The Ministry of Corporate Affairs administers only those companies that are registered under the Companies Act, 1956. In addition to the various provisions of the Act applicable in this context, a central coordination and monitoring committee, co-chaired by the secretary, Ministry of Corporate Affairs, and the Sebi chairman has also been set up. The committee will look into issues relating to companies that had come out with public issues and then vanished. It will monitor the progress of action taken against such companies. Specific criteria have been adopted for identifying these companies. On the basis of these criteria, no company that had raised funds from the public through a public issue has been identified as ‘vanished’ during the past three years.
As many as 18,183 cases were filed against companies for violating the Companies Act, 1956, between January 2008 and March 2009. Of the total number of companies that came out with IPOs between 1992 and 2005, 238 were identified as having vanished. Of these, 117 companies have been traced. This has brought down the number of vanished companies to 121.
How has the monitoring of companies changed after the Satyam episode came to light?
After the Satyam scam, Sebi has initiated a process of peer review of the working papers (relating to financial statements of listed companies) of auditors of companies that constitute the NSE-Nifty 50, BSE Sensex. It also includes some listed companies that are not included in the Sensex and Nifty. These firms have been chosen on a random basis with respect to the last quarterly results and the last audited annual financial results. The objective of this peer review is to ensure that there is no material mis-statement of assets and liabilities, that there is compliance with the accounting standards, and to examine the existence of fraud or other material error in the financial statements.
Also, under the Companies Act, 1956, the government has the power to inspect the books of accounts of companies and investigate their affairs. The cases related to listed companies are taken on priority. The government has set up an electronic registry with a round-the-clock online access. The audited accounts are displayed on the electronic registry for general viewing. The Registrars of Companies also undertake scrutiny of the statutory reports filed by such companies to check any violation/irregularities committed by them.
THE COMPANIES BILL
The Government recently reintroduced the Companies Bill in the Lok Sabha. The new Bill is aimed at replacing the over five-decade-old Act with simplified rules dealing with company formation, mergers and winding up of companies. More importantly for investors, the Bill talks of greater shareholder democracy and protection of rights of minority shareholders. The highlights:
