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We might have a shock when the World Bank's new Ease of Doing Business rankings for the year 2016 are out. Despite all the canvassing, often bordering on begging, that various government departments have been busy with for the past couple of months to impress the Bank team, for a better ranking than the lowly 142 we got last year.
That is because the ministry of corporate affairs (MCA) is all out to wipe away the only bright spot in the rankings. It has already done much damage by rolling back most of the earlier investor-friendly provisions.
Now, it has written to the Securities and Exchange Board of India (Sebi) to roll back the reforms in the provisions on Clause 49 of the listing agreement governing related party transactions (RPT). Why? Because these reforms are supposed to be affecting ‘ease of business’.
The move is both comical and farcical. The ministry’s track record in having a watch over the thousands of companies it registers is pathetic. Its stated position is that it is “neither intended nor feasible” to look into the filings of all the companies it registers and to play a pro-active role. Its corrupt systems often harass the genuine entrepreneur, while showing their teeth to unscrupulous and even fraudulent elements. The Supreme Court has on recent occasions come down heavily on the role played by the registrar of companies in massive scams such as Saradha and Sahara. It is in no position to preach.
Numerous cases are clogged in the Company Law Board, under the ministry’s jurisdiction. The proposed National Company Law Tribunal is yet to see the light of day. This ensures corporate agreements do not get enforced properly and the only recourse for the aggrieved party is to settle ‘out of court’.
This is one reason why India ranks 186 among 189 in the Bank’s ‘enforcement of contracts’ index under the doing business rankings. It takes 1,420 days to enforce a contract and could cost 39.6 per cent of your claim. It takes 4.3 years to resolve insolvency. Our global rank here is 137. In starting a business, we are at 158. In getting construction permits, it is 184. These are the issues the government should be breaking its head on.
RPTs are globally recognised as an important component of the ease of business index. The better the rules, the better your rankings. What Sebi has done is in line with prescriptions of global bodies such as the Organisation of Economic Cooperation and Development. It is because of these changes that India was able to get a much celebrated Number Seven ranking in the protection of minority investor index. This, in turn, weighed into our overall rankings, pulling it out of the much deeper abyss it would have fallen to.
When Rajmata Sivagami in blockbuster Bahubali faces a difficult choice between her two sons for the throne of Mahishmati, she chooses the younger, Bahubali, because he showed the compassion and tactical acumen to vanquish the enemy without harming the civilian human shields. The older, Ballaladeva, loses the crown despite killing the enemy king because he ran over innocents.
Sebi has given its word to ‘protect the investors’ through the preamble to the Sebi Act. It should not budge to the pressures of MCA or anyone above. Like Sivagami, Sebi should stand by its word, saying, “Nanna Matta Saasanam (My word is the law)”, when it comes to listed companies.
