The many layers of lies, intrigue, falsification of accounts and political machinations behind the Satyam scandal are unravelling everyday like the peeling of an onion. Yet, it is also evident that the government is in no hurry to get at the truth behind what is billed as India’s biggest corporate scandal ever. This is clear from the initial reluctance to arrest Ramalinga Raju, to the absurdity of not allowing the Securities and Exchange Board of India (SEBI) to interrogate him and the lack of urgency in the actions of the Ministry of Corporate Affairs (MCA). For instance, on 21st January, the Registrar of Companies (RoC) revealed that Satyam had violated the Companies Act by not seeking a special resolution for the acquisition of the two Maytas companies in which the Raju family has a substantial shareholding. However, revelations that Satyam probably has over 10,000 phantom employees and more than 300 companies through which money may have been routed, expose the failure of the MCA to fix glaring loopholes in the Companies Act, despite multiple revisions in the past decade.
The situation is no different at SEBI. It continues to struggle even to get access to Raju for interrogating him. Whether his interrogation is crucial to SEBI’s investigation is, of course, another matter. Won’t the regulator be better employed examining other records and interrogating senior officials who are not arrested? And why is the investigation into the biggest corporate scam not personally led by the executive director in charge of investigation rather than a relatively less experienced general manager from Chennai?
Experts also insist that SEBI’s investigation order in the Satyam case (for the first time an investigation order has been posted on SEBI’s website) is sloppily drafted and open to confusion about the relevant sections under which the investigation has been ordered. It even mentions the merchant banking ‘rules’ which were rescinded in 2006. Such gaffes, they worry, will later form the basis for companies to challenge SEBI’s action at the appellate level.
Are these signs that a government getting ready for general elections is not in a hurry to have more skeletons tumbling out of corporate cupboards? Probably. But SEBI seems more inclined to act swiftly on the policy front. For instance, it has quickly made it mandatory for promoters and the promoter group to disclose details of shares pledged by them to raise funds. More importantly, disclosures have to be immediate (event-based) as well as periodic and will have to be reported to the stock exchange. This move is likely to open a can of worms given the promoters’ speculation in their own shares, especially the ones that the National Stock Exchange naively included in the derivatives segment. We welcome the speed of this decision and hope that the relevant enforcement is just as quick. SEBI must now show its mettle by resisting pressure and entreaties from corporate India to ensure immediate disclosure of their positions. One corporate group is already lobbying to buy time until June.
SEBI also needs to work on reviving the EDIFAR reporting system. In the past few weeks, many investors, who are worried about the status of their investments, report that detailed annual reports of companies are not available. It is unclear why successive SEBI chairmen have made no attempt to get EDIFAR to work as a statutory reporting system that collates all relevant corporate information, disclosures and statutory filings. Instead, investors have to struggle to find information on the websites of companies, stock exchanges or data aggregators. Another strange lacuna is SEBI’s refusal to penalise companies which do not credit cheques to bank accounts designated by investors. One investor has complains that Piramal Life Sciences sent him a cheque for Rs36, while Reliance ELSS sent a cheque to his bank branch, which then sent it for clearing. How can this be permitted in an environment where every investor has to have a tax number and bank account?
If SEBI is serious about policy changes to improve governance, these loopholes that have been allowed to persist, despite investor complaints, must be dealt with urgently.