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Informist, Friday, Nov. 22, 2024

 

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--SEBI Narayan: Simplistic to say cutting corners makes a company successful
--CONTEXT: SEBI member Ananth Narayan's comments at corp governance event
--SEBI Narayan: If a company cuts corners it has to pay a huge price
--SEBI Narayan: Slope slippery if cos breach norms as everyone else doing it
--NSE Chauhan: Good promoter will be on minority shareholders' side, not own
--CONTEXT: NSE MD Chauhan's comments at corporate governance event
--NSE MD Chauhan: Assymetry of information, power in favour of promoters
--NSE Chauhan: Compliance today is literally tick-boxing, automated
 

 

MUMBAI – Whether regulations need to get less or more prescriptive and provide for compliance in spirit is a question that can only be addressed by going into actual specifics of every case, Securities and Exchange Board of India's whole time member Ananth Narayan said Friday. Speaking at a corporate governance event in Mumbai, Narayan said when SEBI was recently plugging the loopholes in the alternative investment fund rules it faced a major dilemma of 'letter or spirt' compliance.

 

Before the loopholes were plugged by SEBI, the AIF regulations were such that funds could structure themselves in a such way that they circumvented Reserve Bank of India's guidelines on non-performing assets, and rules under the Foreign Exchange Management Act, Narayan said. The funds and their lawyers asked SEBI to show exactly where the AIF regulations were breached, and they were right, there was no breach, he said. "But we all knew what was happening," Narayan said.

 

Narayan also pointed to instances of related party transactions that SEBI has been finding. The rule prescribes majority-of-minority shareholder approval for companies before doing material related party transactions. But SEBI has come across companies that lend to un-connected or un-related companies which in turn lend to their related entities, Narayan said. "That is when we (our rules-setting) become prescriptive," and try to catch "all that can go wrong," he said.

 

On corporate governance, Narayan said the regulator is aware of the dilemma of circumvention of rules where a company, start-up, or a business entity wonder whether the only route to become large and successful is by cutting corners. According to the whole time member, it is a simplistic thing to argue on these lines. Narayan said regulated entities are treading on a slippery slope if they believe the rules can be circumvented "because everyone else is doing it." If a listed company or a regulated entity cuts corners it has to pay a huge price, he said.

 

Speaking at the same event, National Stock Exchange of India's Managing Director and Chief Executive Officer Ashishkumar Chauhan said a good promoter will always be on the side of the minority shareholders of his company, and not on his own side. There is asymmetry of information and power in the promoter's favour.

 

Referring to the instances highlighted by Narayan with regard to complying with the rules in spirit and not just in law, Chauhan said formal compliance today is literally tick-boxing and the regulators also process it in an automated manner. But "the spirit part of compliance is what you get measured by," Chauhan said.  End

 

Reported by Rajesh Gajra

Edited by Ashish Shirke

 

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