The Hindu Business Line : Clause 49: SEBI warns erring cos

The SEBI will ensure that tough action is taken against companies that fail to comply with the Clause 49 provision of the listing agreement, according to the SEBI Chairman, Mr M. Damodaran. Among other things, Clause 49 stipulates that boards of listed companies should have 50 per cent independent directors.

Speaking at a corporate governance seminar today, Mr Damodaran said that the SEBI would not hesitate to "revisit" the norms if corporates try to take advantage of any loopholes in the existing rules.

"We do not want an adversarial relationship (with corporates)," he said, adding that if the corporates tried to "hoodwink the regulator and the stock exchanges" by giving false certificates on Clause 49 compliance, the SEBI will only be "too happy" to have an adversarial relationship with corporate India.

Companies have been asked to submit the Clause 49 compliance levels to the stock exchanges by April 15, he said.

Mr Damodaran said that the regulator would be empowered to take tougher action on erring companies after the proposed amendments in the SEBI Act 1992.

The additional powers to be vested with the regulator after the amendments will make "today's penalties look like peanuts."

To effectively monitor the companies, the regulator is recruiting more people in its enforcement, investigation, and compliance departments.

Further, the Clause 49 of the listing agreement, which came into force from January 1, 2006, allows the stock exchanges to delist erring companies, the SEBI chief said.

The SEBI would look into 15-20 companies closely and "come hard on 4-5 companies" if there are any violation of the rules, in an attempt to discourage others from unfriendly investor practices.

Reacting to a response from a panelist that the Institute of Chartered Accountants of India (ICAI) had not brought out the guidance note on Clause 49 even after three months into the new regime, Mr Damodaran said that the SEBI would not take this matter lightly.

"We will write to the Ministry of Company Affairs on this issue."

On the issue of selection of independent directors, he asked companies to look beyond their community of friends, relatives and associates.

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