The Hindu Business Line : Bigger companies face bigger fines

He said that many had asked SEBI if it would dare to delist some of the larger companies, if they defaulted. The regulator would meet that challenge. The Indian market would "see some shocks," he said.

(From left) Mr M. Damodaran, Chairman, SEBI; Mr A. Sankarakrishnan, Managing Director, Kone Elevator India Pvt Ltd and Vice-President, Madras Chamber of Commerce and Industry; and Mr R. Seshasayee, Managing Director, Ashok Leyland Ltd, at a seminar on Corporate Governance organised by the Madras Chamber of Commerce and Industry in Chennai on Saturday. — Bijoy Ghosh

Chennai , Aug. 20

THE Securities and Exchange Board of India Chairman, Mr M. Damodaran, on Saturday warned of stern measures against companies that do not comply with Clause 49 of Stock Exchange Listing Agreement, which, he said, would definitely come into force on January 1, 2006.

He said SEBI was working towards introducing a provision in the Listing Agreement that would make non-compliance of Clause 49 as a "continuing offence"— the violators would have to pay a fine for each day the offence continued.

"The bigger the company, the bigger the fine and our coffers will be enriched," Mr Damodaran said, while delivering the keynote address at a seminar on corporate governance, organised here by the Madras Chamber of Commerce and Industry.

Mr Damodaran said the issue of Clause 49 had been debated enough in India — for as long as five years. There would be no more extension of deadline for its coming into force.

He stressed that the differences between SEBI rules of corporate governance and the recommendations of the Irani Committee were "not many, or unbridgeable." (The difference basically relates to the number of independent directors a company's board should have.)

Mr Damodaran said the new Companies Act might feature corporate governance standards that are lower than SEBI rules. "If the Indian Parliament in its wisdom enacts a law which prescribes standards lower than Clause 49, then, with extreme regret, SEBI will comply with that law," he said.

However, observing that India was a standard setter in corporate governance matters, he said the regulator would "strain every sinew" to ensure that Parliament did not enact a law that prescribes lower standards. He, however, said that SEBI was open to changes in Clause 49 wherever necessary. He said he was aware that the cost of compliance was high and that SEBI believed that it could ensure cost-effective compliance of corporate governance rules. He hinted that the stipulation that required board meetings to be held four times a year and that there should not be a gap of more than three months between two successive board meetings could be amended.

Earlier, one of the speakers, Mr N. Sundararajan, Secretary, Ashok Leyland, had suggested that SEBI might look at bringing in differential regulation, varying with the ownership pattern. Reacting to this, Mr Damodaran said India was not yet ready for that.

Similarly, he said, corporate India was not ready for corporate governance (CG) ratings.

Responding to a suggestion that CG ratings be encouraged, Mr Damodaran said such ratings would work only when a large number of companies complied with the CG regulations Otherwise, good CG ratings could be misleading.

He said SEBI would be "comfortable" if the rating agencies would answer investors if companies that received good ratings failed. He observed that Enron had received an award for good corporate governance 12 months before it collapsed.

Later, answering a question, Mr Damodaran said the regulator was working towards compulsory delisting of companies whose shares were not actively traded on the stock exchanges. Such delisting would be done in such a manner that the small shareholders got some money back.

Responding to another question, he said that there were enough persons in the country who were both willing and qualified for taking up position as independent directors. The question of remuneration for independent directors was a ticklish one — the remuneration ought not to be so low as to deter competent persons from accepting board positions, nor too high to impact their independence.

On another question, Mr Damodaran said SEBI was working towards making insider trading laws tighter, so that the "preponderance of probability" had enough grounds to initiate proceedings. SEBI was awaiting the Supreme Court verdict on "a high profile case" and if the verdict came in its favour, it would strengthen the regulator's position to deal with insider trading.

Asked if SEBI emphasised more on form than substance, Mr Damodaran said that he agreed and that his biggest challenge was to move away from form towards substance.

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