The Satyam scam will not deter the corporate affairs ministry from going ahead with its plans to de-regulate the corporate sector. The proposed Companies Bill, 2009, which is under the consideration of a parliamentary committee, will not have any major Satyam-triggered changes, according to Corporate Affairs Minister SALMAN KHURSHID. In an interview with Joe C Mathew, the minister gives an overview of his plans for the ministry and various autonomous institutions attached to it. Excerpts:
What is the state of the Satyam investigations?
We have finished our work. There are several agencies involved and we are just waiting for the prosecution to proceed. The CBI has almost completed the investigations related to the IPC (Indian Penal Code) violations and has filed a chargesheet. We are waiting for the Enforcement Directorate to say if they have to follow any trails of money siphoning or any other violations of the law. Instead of going in different directions, all these investigations must come and converge in one place with the CBI at the forefront. There is a co-ordination team, and now it’s just a matter of taking the next step. Investigations are more or less over. It’s just the question of getting it into court.
The ministry had asked the Institute of Chartered Accountants of India to file a report on the role of auditors in the Satyam scam. Is it ready?
They have a report on what has happened as far as their members are concerned and the disciplinary action that they are taking. There are other aspects, such as tightening the audit system which we still have to consider. They agree with what we think should be done to make these people turn accountable, to ensure something similar does not happen again, as that’s the larger issue. We are preparing for that in the Companies Bill 2009.
Does that mean you need to make more amendments to the Bill?
The Bill is with the (Parliamentary) committee and I cannot anticipate what ideas will come up before the committee. We have given it our best. We do want the committee to examine certain things. The lessons which we have learned (from Satyam) have confirmed our anticipation of what can go wrong, which we have already put in the paper (Companies Bill). It has confirmed our views on what necessary steps need to be taken for better corporate governance and we have put those steps into the bill. Some minor things may arise once it is before the committee.
The Bill was aimed at moving towards more de-regulation. So how can you say that the checks for Satyam-type frauds were anticipated?
That’s largely because that’s the basic shift from regulation to self-regulation, in terms of the democratic right of shareholders to choose what type of a company they want. The thematic structure we have worked upon allows that, but with complete disclosure and with information being made available. I don’t think that will change, though there may be some minor fine-tuning in response to what has happened due to the meltdown in the US and what happened at Satyam and so on. But I think that is best left to the observations of the committee.
What is your view on dual-listing of companies?
That has nothing to do with us (corporate ministry), but with the finance ministry and Sebi (Securities and Exchange Board of India).
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But the finance minister had said the Companies Bill would have to be amended to make this happen?
It’s the other way round. They (finance ministry) have to make changes in their laws and then come to the corporate affairs ministry to change company laws. We won’t make any amendments to introduce dual-listing. If they find it is acceptable, or that we have reached a stage where it is possible, we will do it. But it is not on our table — nobody has made a request to us and we don’t come into the picture.
Do you think SFIO needs to be empowered? Should an SFIO report remain an internal document, or be disclosed?
The powers we think the SFIO (Serious Fraud Investigation Office) needs to investigate a case similar to Satyam’s have already been included in the Companies Bill 2009. The SFIO’s report is an internal document, because — let’s face it — the potential for damaging somebody’s reputation is very much there. So, before something becomes a public document through a court filing, no leakage of information should come from SFIO on the basis of its investigation. I think this is true in the case of any investigation procedure. We shouldn’t be seeking information before it (an investigation) comes to a final conclusion. Once concluded, it becomes a matter of public record and then, obviously, the court takes a view.
Do you really think we need a regulator to monitor our professional bodies, such as ICAI, ICSI and ICWAI?
The question is whether we need to take a fresh look at the structure of these institutions. Standards in education, regulating the profession — these are important aspects. Should all these be in one place or in two different places? What kind of distinctions should there be between these two? I think we have experiences from elsewhere in the world. And I would imagine that this is something on which there should be a discussion. We should examine every area and see how we can improve the system as it exists today. It would be unfair to take a suo motu decision unless we have a discussion on this.
Do we really have a roadmap for switching over to the international accounting standard, IFRS? Are only foreign companies to be included in the first phase?
The IFRS (International Financial Reporting Standards) convergence will take place in 2011. Accounts will have to be kept in that format from 2010, and we have a very clear deadline of November. But any talk about foreign companies having to follow the rules first is pure speculation. I don’t think we should seriously view the opinion of different members unless the three groups that are looking at it converge and give us a roadmap.
Post-Satyam, you had talked about the introduction of an early warning system... Is it independent auditing?
It’s not independent auditing. We are working with Sebi. You look at different sectors and companies of different size at random to see if you can get a format for feedback on various functions and various attributes of those companies. Can we intelligently read that to find some way in which we can draw some kind of measure of how to respond? When can we say a company is in a normal situation or under stress? Or if a company is doing well, is it in a state of buoyancy for the right reasons or for the wrong reasons? These are the things which have to be put together in a model, and for a model, you need to experiment on something.
So, it’s like trials for developing a medicine. Unless you have done some laboratory experiments, you can’t come up with a model. At this stage, when we say it’s a pilot project, we are trying to understand companies of different sizes and of different success rates and in different sectors. We need to get a model that can apply to everybody. When we start with a model, it has to be skeletal and we have to fill it in. We have a model with Sebi — let us see what we can develop.
Any timeline for this?
We are working every day, there is no timeline. We won’t take an incompetent model, saying: “We need to take it”. Internationally, we haven’t seen anything similar.
Do you think there is a need to have more checks and regulations on promoters’ stake and pledging of shares?
Well, pledging of shares is not a problem. Pledging of shares is what allowed us to save Maytas Infra. If they were not pledged, there wouldn’t have been a majority shareholder willing to acquire the company. Because they had shares and they were also a lender, they became the ideal person to protect the company and that’s a new model of saving a crisis-ridden company.
Is there any move to discourage registrations of multiple subsidiaries by companies?
In the provisions of the Companies Bill, 2009, you will see disclosure and consolidation of accounts and consolidation of financial statements. These are basically to give a fair and transparent picture of the structure of the company and its subsidiaries. It is all being provided very carefully. We can’t discourage people from forming companies — we need to encourage them. We have given them the option to form one-person companies, the LLP companies. So there is no question of discouraging them from forming companies. But there should be disclosure and there should be transparency, which is being assured — I hope — through the new legislation.