Even conceding that the JPC report was a damp squib, the government did a neat job of ensuring that newspapers found little to report in its second Action Taken Report (ATR). This one too is as much a chronicle of Action Not Taken as that submitted in May. For instance, Section 408 of the Companies Act allows the government to appoint directors on companies that are mismanaged, by making a reference to the Company Law Board (CLB). A CLB reference had been made by the government in connection with seven companies—Padmini Technologies, DSQ Software, Kopran, Pentamedia Graphics, Panther Industrial Products and Panther Fincap and Management Services. The ATR in May went along with the plan and added Classic Credit, Classic Shares and Stock Broking Services and Panther Invest Trade to the list. Six months later, there is no action under Section 408. Instead, Sebi has barred some of these companies and others like DSQ Software are getting away by having their offences compounded.
Another issue that the JPC Report had made a point to mention was the delay in disciplinary action against auditors by the Institute of Chartered Accountants of India (ICAI) despite the government having six nominees on its council. In May 2003, the ATR ambitiously reported that the ICAI has identified 65 cases, which required investigation or action against auditors. Of these 35 were in the preliminary stage and 30 had been reported to the Disciplinary Committee. Six months later, the government had little progress to report and instead the ICAI has been in the throes of serious turmoil and its top brass has lost the confidence of a significant chunk of its members. The DCA, which adopted a soft approach to the ICAI’s managing council, is only now promising to take charge. No compensation as far as compensating investors is concerned, it is again Action Not Taken. One of the positive suggestions in the JPC report was that Sebi should set up Consumer Courts or Securities Tribunals that are empowered to award compensation to aggrieved investors. It quoted Sebi as having suggested that Securities Appellate Tribunal (SAT) be empowered to attach properties of such defaulters. And the government was to have reconstituted SAT into a multi-member body, which is better empowered to handle grievances. While SAT has indeed been reconstituted, the government hasn’t found the time to appoint people to SAT or even worried that it would face a grilling in parliament. Similarly, the JPC wanted specific action to prevent company promoters from making unfair profits by allotting themselves preferential shares. By December, only Sebi had come up with some hurried recommendations to plug loopholes in such issues, which are still to be implemented.
On December 16, when Crisil sent a notice to the stock exchanges about a board meeting to consider a proposed acquisition, the stock was almost calm. The announcement sent the stock soaring 3.6 per cent to close at Rs 452. The next day, it announced its acquisition of EconoMatters, a London-based energy and gas advisory firm and the stock soared another 6 per cent to Rs 508.75. What is so special about that you wonder? Well nothing. Except that it proves that careful companies can keep their acquisition plans firmly under control and prevent inside information from leaking out, as they seem to do in almost all takeover and merger cases. Maybe if Sebi shifted the onus on to companies to prove that there was no inside dealing, by providing a list of all those who were privy to the deal, it would check insider trading a lot faster than post-deal investigations.
Home Loan mela
The Home Loan mela started by banks and the desperate competition to approve housing finance at the lowest rates, with minimal checks and balances seems to be spinning out of control—at least in cities such as Kolkata. While all banks have plastered the city with advertisement hoardings offering loan, consumers find that it is not so easy to get approvals. And that is not due to the quality of their finances or property documents. They are discreetly told that the job will be easier if they come through a broker. Interestingly, the brokers are not the usual property brokers. They are usually former bankers who have taken voluntary retirement and set up shop as financial intermediaries. And their connections with specific banks ensure that the money is released even if the documents are faulty. The racket is probably more prevalent at nationalised banks with less accountability. While banks are riding high on the present capital market boom, their loans to individuals could end up causing quite a hole in their books if their senior management and the regulator are not careful. -- Sucheta Dalal