| Sebi unwilling to reveal names of entities involved in RIL insider trading case |
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New Delhi, 25 November The Securities and Exchange Board of India (Sebi) has filed appeals in the Bombay High Court against an order passed by the Central Information Commission ( CIC) earlier this month in the RIL insider trading case. Sebi has preferred appeals in all the three matters covered in the CIC order directing disclosure of information. These appeals were likely to come up for mention in the court early next week, people involved in the matter said. Earlier, the Bangalore- based lawyer who had sought the details under the Right to Information ( RTI) Act had filed caveats in the Bombay High Court to prevent any ex- parte stay on the matter. On November 6, CIC had directed the market regulator to reveal the identities of a dozen entities involved in short- selling Reliance Petroleum shares in the derivatives segment in November 2007. The commission also said the regulator had to share the details of the investigation report and consent order proceedings in this matter. In the third matter, it also said the file notings and other relevant documents that led to the inception of the consent- order mechanism in 2007 be revealed. Sebi had challenged this on grounds similar to those it had raised at the CIC appeal, said the people who had seen the appeals. In all these cases, the chief public information officer of Sebi had not disclosed any information, claiming, "( a) the quasijudicial proceedings were in progress and the disclosure of such information would impede the process of investigation already underway; and ( b) the desired information was exempt in terms of sub- section 1( d), (h), ( e), ( g) and ( j) of Section 8 of the RTI Act". These sections provided for exemptions, under which information in the nature of commercial confidence that could also affect the competitive position of a third party could be withheld, said lawyers. While the appellate authority had upheld this position, CIC, the apex body under the RTI Act, had said these exemptions did not apply in the present case. Pointing out that the matter had been unresolved for several years, pending a final decision, the commission said in its November 6order: " Several entities have been identified by Sebi who were involved in the insider trading/ short- sale of shares of Reliance Petroleum in 2007. The details of these entities are still not in the public domain. After carefully considering the facts of the case and the submissions made before us, we are inclined to agree to the demand of the appellant that the disclosure of this information would serve a larger public interest." CIC added: " If, as a regulator, Sebi took cognizance of allegations of any breach of law, rules or regulations by one or more entities for unlawful private gain, the information generated in the process of its investigation needs to be disclosed in the public domain. Such disclosure would keep the general public informed and educated about the risks they might confront in making investments in the market. It would also prevent many entities from adopting shortcuts to make profit through unlawful means." The argument that at the end of the quasijudicial proceedings, the charged entities might be found innocent could not be an argument against disclosing the information, the commission had said. Moves Bombay HC against CIC order issued in ' public interest' FIGHT TO INFORMATION Asequence ofevents |Bangalore- based lawyer files RTI for the identities of entities to be revealed |Sebi refuses to give details, saying revelation would affect investigation |CIC directs Sebi to give details, as that would be in public interest |Sebi moves high court against the CIC order |
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Govt is above the law in Capital market
It was 2002, the highest point ever in the Government of India's privatisation programme. Public sector disinvestment was being pursued in right earnest by the National Democratic Alliance government, then in power at the Centre. Arun Shourie, a powerfully articulate minister, was in charge of disinvestment. Mr Shourie piloted a strategic disinvestment programme, and invited bids from all over the world to pick up stakes in various identified public sector companies. Many of these companies had been listed on stock exchanges in the past when the government had wanted to sell small parts of the family silver to cover its costs and bridge its deficits. For these companies to list, they had to play by the rules of the game applicable to listed companies. Their promoter and patron, the government, too had to play by the rules of the game – at least, substantially. Of course some corners would be cut here and there, like a discounted charge of listing fees, but on substantial issues, there had to be compliance, by and large. One of the most substantive regulatory requirements applicable to listed companies is the takeover regulations. India boasts of a statutory regime for takeovers with regulatory prescription mandating an obligation to make an open offer to protect public shareholders. If one were to take over a company whose shares are listed, one would have to provide an exit opportunity to the public shareholders. When the disinvestment programme was conceptualised, various forces leaned very heavily on the Securities and Exchange Board of India ( SEBI) to waive this requirement for takeovers of public sector companies. The Government of India is said to have weighed in quite strongly to amend the takeover regulations waiving the mandatory open offer for public sector disinvestments. A private investor who does not have to earmark with the date of such announcement. In the disinvestment programme, since the deal would get announced when the bids invited by the government were opened, it would have been unfair to let any upward price movement resulting from the market factoring in that very news, to influence the computation of the minimum offer price. Therefore, the regulations were amended merely to align the timing and procedure with the an exemption. It was perhaps convenient to take such a seemingly noble stand because such an amendment was also necessary to ensure that the disinvestment process did not present a non- level playing field to the non- government companies that were competing in bidding with government companies. The grand stand was fantastic, but this was all in the case of control over listed companies changing from the government to private hands. Now, when government is increasing its stake in listed companies, the Government of India is successfully making SEBI bend over backwards to grant exemptions when the government raises stakes in listed companies. In the case of IFCI Ltd, a beleaguered financial institution, the Government of India was permitted to brazenly increase its stake from 0.0000011 per cent to 55.57 per cent without making any open offer, extolling the virtues of how the government was bailing out the company in public interest. However, there not even a whisper in SEBI's exemption order about why depriving public shareholders of an open offer would be in the interests of investors in the securities market. This was a clear case of a complete takeover of a listed company, and yet, public shareholders who had been saddled with a non- performing company for years, were denied an exit opportunity. Very helpfully, an external panel of experts had unanimously endorsed granting the exemption and the regulator, of course, only accepted the panel's recommendations. Not even in the case of Satyam Computers, where India's largest alleged corporate fraud was discovered, and a bidding process resulted in a private sector acquirer bailing out the company, had the regulator thought it fit to grant such an exemption. Surely the adage " be you ever so high, the law is above you" does not apply to the government when it comes to SEBI regulations. This impropriety will not find mention in any report of the Comptroller and Auditor General – the exemption saves money for the government. The only voice of a protector of investors' interest could be that of the regulator. That voice speaks a different language when it comes to a conflict of investors' interests and the government's interests. (The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.) somasekhar@ jsalaw. com WITHOUT CONTEMPT SOMASEKHAR SUNDARESAN The adage ' be you ever so high, the law is above you' does not apply to the government when it comes to SEBI regulations |
| LEGAL DIGEST |
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An executive going in the company car is entitled to compensation in a road accident only if the vehicle is insured under the ' package policy', earlier known as comprehensive policy. The Supreme Court last week rejected the argument of National Insurance Company that it was not liable to indemnify the managing director of a company who was injured in an accident while riding the company car. The insurer contended that the policy taken by the company did not cover the executive as he was not a ' third party' under the policy. The tribunal found that the accident was caused by the rash and negligent act of the driver and the executive was awarded ₹ 9 lakh in damages. The insurer appealed to the Madras High Court arguing that the executive was a non- fare passenger and no extra premium was paid to indemnify him. The high court rejected that also. The Supreme Court remitted the case to the tribunal to check the details of the policy, which was not available. If it is a package policy, the executive will be entitled to compensation from the insurance company. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Cheque bounce complaint valid The Supreme Court ruled last week that a complaint of bounced cheque need not be signed in the first instance, but can be verified later before the magistrate. The Supreme Court rejected the argument of the accused person that the complaint against him was not signed and therefore not valid. He had sent 57 cheques as payment for supplying yarn by Reliance Industries. They were returned by the bank with the remark, " exceeds arrangement". The metropolitan magistrate recorded the verification statement and issued summons against the accused. He challenged it in several courts without success. The Supreme Court said in its judgment in the case, Indra Kumar vs RIL: "The complaint under Section 138 of the Negotiable Instruments Act without signature is maintainable when such complaint is verified by the complainant and the process is issued by the magistrate after due verification." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> RBI objects to revival scheme A division bench of the Delhi High Court last week set aside the judgment of the company judge in a petition moved by Reserve Bank of India, SEBI and others in the matter of CRB Capital Market Ltd and remitted the matter to the company court for consideration of the winding- up of the company. The company judge had sanctioned the revival scheme in the interest of depositors. However, RBI moved the division bench against the decision. It ruled that the scheme as sanctioned by the company court contravened the provisions of the RBI Act. It added that though a scheme can be envisaged in the course of a winding up petition under the RBI Act it has to be in conformity with the provisions of law. " We feel that the scheme as formulated in the present case is not bona fide, feasible or fair," the judgment said. RBI had vehemently contended that during the pendency of a winding up petition under the RBI Act no scheme under the Companies Act could be propounded or considered. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Geo indication of divine ring The Intellectual Property Appellate Tribunal has asked the Geographical Indication Registry to reconsider the issue of a hand- made finger ring made of gold and silver originating in a small town in Kerala. The Geographical Indication identifies and indicates the manufactured goods as originating in Payyannur. The geographical indication was " Payyannur Pavithra Ring". An association of local artisans was granted the registration. However, a jewellery firm opposed the registration, and argued that the history of the ring as provided by the association was false and gave another 18th century genesis to the ring. It also submitted that the ring was of divine significance and should not be commercialised, monopolised or patented. However, the registrar rejected the objections. The appellate board found that the artisans were not aware of the controversy. Therefore, the registrar was asked to publish the issue in a language newspaper with wide circulation. The board also asked the lawmakers to consider introducing a provision, as in the Land Acquisition Act, which requires each applicant to publish the intention so that people are made aware of the move for geographical indication registration. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 'Judgmentmust disclose reasons' The National Consumer Commission has asked the Rajasthan state consumer commission to reconsider its " cryptic" judgment as it has not given reasons for its conclusions. In this case, Standard Chartered Bank vs Himanshu Sharma, the complaint was about arbitrary and unilateral imposition of late charges/ penalties. The district forum asked the bank to return the amount with interest and awarded ₹ 50,000 as compensation. The bank appealed to the state commission, which dismissed the petition without giving reasons. The national commission stated that reasons were important and asked the state commission to hear all parties again and deliver a detailed judgment. MJ ANTONY THINKSTOCK |
| Who protects the minority interest? |
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Globally, the protection of law is minimum to equity shareholders because they are deemed owners of the company. The court of law intervenes only when there is mismanagement or fraud. The protection is even lower for shareholders in companies where there is ownership concentration. Let us take the case of The Childrens Investment Fund Management LLP( TCI), a UK hedge fund that holds 1.01 per cent stake in Coal India Ltd ( CIL). It has filed a lawsuit against the directors alleging that they have failed to ' perform their functions with adequate care and skill.' It has also named the Indian government, which owns 90 per cent of the company, in its suit " for improperly exerting pressure on CIL directors" on key policies. TCI is seeking cancellation of a coal ministry directive that led to a revocation of a 12.5 per cent increase in coal prices in January. It argues that the local regulation allows prices to be set independently by coal companies, and therefore, the governments directive was illegal and has cost CIL a lot of money. In a panel discussion someone argued that TCI has no case as the Red Herring prospectus filed by CIL mentions government intervention as one of many risks. Item number 17 under Internal Risks, among other things, discloses that CIL sells coal at a price lower than the market price and it consults the Government of India in determining the price of coal. TCI has no case if the court of law applies the principle of ' caveat emptor' ( let the buyer beware), which is usually applied in contracts for sale of goods. A clause that usually appears in Red Herring Prospectus of private sector companies that are promoted by business groups discloses that promoter's decisions might not be in the best interest of minority shareholders. An example is Clause 40 ( section II) of the Red Herring Prospectus of Godrej Properties Limited. It clearly states that the promoters may take or block actions with respect to the company's business, which may conflict with the company's interests or the interests of the minority shareholders. It further states that the management cannot assure minority shareholders that promoters will always act in their best interests. Perhaps such clauses are included in Red Herring Prospectus to protect the management from any legal proceedings against the company, which some shareholder may file on some trivial issue. However, such a clause weakens the legal protection to shareholders if the court of law applies the principle of ' caveat emptor'. The outcome of the TCI case will be of interest to us. Institutional investors can play an important role in protecting minority interest. Therefore, SEBI has made it mandatory ( effective from 2010- 11) for AMCs to disclose in their website the proxy- voting policy and how they actually voted in annual general meeting (AGM) or extra- ordinary general meetings ( EGM) of shareholders. However, an analysis for the year 2011- 12 by ' ingovern', a proxy advisory firm, shows a dismal picture. Mutual funds abstained from voting in 48 per cent of resolutions, voted for 51 per cent of resolutions and voted against one per cent of resolutions. In most cases, where they voted against a resolution, they failed to block the resolution. However, one positive aspect of the new regulation is the emergence of proxy advisory service firms, which advises institutional investors to take a view on different resolutions proposed to be placed in AGM/ EGM. They are able to draw attention of investors to decisions that might hurt minority interest by asking uncomfortable questions. This exposes companies to reputation risks. In India family business dominates the corporate sector and therefore, investment decisions are significantly influenced by the reputation of the management. Therefore, it is a way forward in improving corporate governance. Research has established that independent directors are not effective in influencing strategies and policies of companies, which are managed by the promoter group, including the public sector enterprises. Although it is an exaggeration, it might not be totally incorrect to say that minority interest is not protected in India. The only way out is to improve the average level of corporate governance. This can be achieved by tightening the regulations and strict enforcement of the same. The proposed new Companies Act will go a long way in improving corporate governance. Let us hope that the Parliament will approve the same in this winter sessions. After all we live in hope. Email: asish. bhattacharyya@ gmail. com Affiliation: Professor and Head, School of Corporate Governance and Public Policy, Indian Institute of Corporate Affairs, Manesar, Haryana Institutional investors can play an important role in protecting minority interest Institutions created to protect non- controlling shareholders, especially in family businesses and public sector enterprises, are ineffective ACCOUNTANCY ASISH K BHATTACHARYYA |
Company Secretary, Chennai
email csarengarajan@gmail.com
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