The government has finally decided to turn the heat on four of the companies repeatedly figuring in the reports of the various agencies on the latest stock scam. Himachal Futuristic Corporation Ltd (HFCL), DSQ Software, Zee Telefilms and First Global have come under the scrutiny of the finance ministry which has set up an inter-departmental committee with a wide ranging mandate to enquire into their affairs.
The committee includes officials from almost every agency in the government - the Securities and Exchange Board of India (Sebi), the Reserve Bank of India (RBI), the Central Board of Direct Taxes, the Department of Company Affairs, Enforcement Directorate and even the Central Bureau of Investigation.
It will investigate the activities of the foreign subsidiaries of these four companies on the basis of the various reports that have been filed by the agencies independently over the past few months. These include possible violations of the Foreign Exchange Management Act and Sebi regulations.
The investigation by the committee, however, will not preclude the simultaneous inquiry being conducted by the Joint Parliamentary Committee on the stock market scam.
The government feels that the role played by the rapid profusion of foreign subsidiaries of many domestic companies has not helped in the proper functioning of the bourses. While the ministry is understandably reticent about commenting on the issue, the choice of these four companies has been prompted by the latest report of Sebi and that of the RBI which have both mentioned them and their alleged role in the transfer of funds to and from the country. The committee is expected to submit its report soon.
The issue of tax haven as an inducement for setting up foreign subsidiaries is also being examined. The government will also examine the role of the Overseas Corporate Bodies (OCBs) in setting up foreign investment arms in India. Incidentally, the proposed announcement of a policy to regulate the exposure of the OCBs in stock exchanges by Sebi and their dis-association from the Portfolio Investment Scheme of the RBI has also been postponed due to this development.
