Corporate affairs ministry gears up for early detection of fraud

Technology will be at the forefront of efforts by India’s ministry of corporate affairs, or MCA, to detect corporate frauds, said an official at the ministry.

The ministry, according to this person who did not want to be identified, will mine its database of reports filed electronically by companies and their auditors, follow up on public complaints, media reports, and information from whistleblowers to detect corporate frauds early.

MCA has been at the forefront of recent investigations into Satyam Computer Services Ltd, whose founder admitted in January to having fudged the company’s accounts over the years to the tune of at least Rs7,136 crore. Even as these investigations continue, the company’s ownership has changed hands in a deal facilitated by the government, and it is now controlled by Tech Mahindra Ltd and goes by the brand name Mahindra Satyam.

Apart from using technology and following up on reports and complaints, MCA will also try to coordinate better with stock market regulator Securities and Exchange Board of India (Sebi) and banking regulator Reserve Bank of India (RBI), said a second MCA official, who, too, did not want to be identified.

All the new measures are part of MCA 21, the ministry’s e-governance initiative.

“Data mining is a focus area for the next generation MCA 21 programme where we plan to make the best use of technology and data to detect corporate frauds. The National Institute for Smart Government (NISG) is working on a concept paper on how to knit technology with the available data so that the ministry gets best information on every company registered with it,” said the first MCA official.

To be sure, the quality of the e-filings by companies and MCA’s own monitoring of these needs to improve. Pavan Kumar Vijay, managing director of Corporate Professionals (India) Pvt. Ltd, a Delhi-based research outfit dealing with corporate analysis, said: “Over 50% companies today don’t do e-filing. When MCA sends them notices, most often they are returned undelivered. Perhaps the ministry needs to start an operation to plug this loophole. One such move can be publishing defaulters’ lists in newspapers.”

Based in Hyderabad, NISG works with the Union and state governments with their e-governance initiatives.

The first MCA official said NISG would submit the concept paper on new generation MCA 21 before the end of this fiscal year and that the project would be launched sometime next year.

The second official said the ministry would start using the so-called extensible business reporting language (XBRL) in an effort to work closely with Sebi and RBI, which are also migrating to XBRL.

XBRL is an electronic format for communication of business and financial data that is becoming popular around the world. India, too, is working on moving on to XBRL.

While MCA maintains a database of all registered companies, Sebi deals with listed firms and RBI with banks and non-banking finance companies.

“Through e-filing, MCA has obtained a mass database which is available in public domain. So far its use is restricted to getting information on companies. But this data can be productively used for examining and analysing the direction in which companies are moving. XBRL, combined with a sophisticated technology, will further support these objectives,” said Ashok Haldea, former secretary, Institute of Chartered Accountants of India.

The second MCA official said tenders for providing software for MCA 21 would be called for sometime this fiscal year. Currently, the software for MCA 21 is provided by Tata Consultancy Services Ltd.


Source: http://www.livemint.com/2009/07/17010731/Corporate-affairs-ministry-gea.html?h=B

Safety net proposed for independent directors

Independent directors may breathe a sigh of relief as the government braces itself to protect them from being held responsible for the

wrong-doing of their company, through a number of proposed changes in the Companies Bill, 2008. The bill, which was introduced in the latter half of 2008 but eventually lapsed, will be re-introduced in the ongoing Parliamentary session.

The ministry of corporate affairs, is willing to introduce further changes to the Bill in respect of the provisions that will guide the performance of independent directors, a move that has been prompted by the large scale resignation of such directors over ambiguity on their role.

The government will set an outline as to what will be an independent directors’ role vis-a-vis his company’s decision-making process. The idea is to safeguard them against any legal action when they are not directly at fault for their company’s wrong-doing.

The Bill, which is set to be sent to the Parliamentary Standing Committee for a review, will look into the need for changes to give greater flexibility to these directors, and will send its proposal to the ministry. The ministry of corporate affairs, will thereafter introduce the changes to the bill before it is made enforceable.

The ministry, which in the Companies Bill 2008, first introduced the concept of independent directors and also made provisions for their mandatory one-third representation on company boards, is mulling changes into the proposed legislation so that such directors can have a defined role to play. Even as independent directors are expected to act in the interest of the company’s ordinary shareholders, the law does not specify the exact nature of their duties.

The ambiguity on the nature of duties of an independent director often leads to situations where they are blamed for all wrong-doings of the company, a government official said, adding that it was necessary to bring clarity to the law so that degree of accountability against those directors can be clearly drawn. The ministry has also invited recommendations from industry bodies such as CII and Ficci, and is considering to incorporate in the new Bill.

CII, for instance, has urged the ministry to clearly define an independent director and bring it in conformity with the definition under clause 49 of the equity listing agreements of stock exchanges.

It has also suggested that the need for appointment of such directors in closely-held public companies and subsidiaries of any public companies should be governed by the materiality and scale of operation of such companies.

Thus, in case of an unlisted public company or a private company, which is subsidiary of a public company, the requirement related to such appointments should only arise if they exceed the prescribed thresholds of size and scale.

Under the proposed changes, these directors can be held responsible only in those circumstances where the company takes a decision wherein they were actively involved. To put in simple words, independent directors may not be asked to serve as an overall watchdog of the company, a notion which the government now sees as overtly ambiguous.

The reason for the change has been a spurt in resignations by independent directors from the board of companies, that followed the Satyam financial scandal wherein such directors on the erstwhile Satyam’s board were blamed for their inaction to safeguard the company’s general interest. The idea is to provide independent directors with a clearly defined way of performance, so that they can not be acted against in case they are directly not at fault.

“We are aware of the fact that it is important to preserve the breed of independent directors by providing them adequate protection. They have an important role to play in good corporate governance,” Minister of Corporate Affairs Salman Khurshid had recently said at a CII seminar, where he met key industry officials.

Source:http://economictimes.indiatimes.com/Economy/Safety-net-proposed-for-directors/articleshow/4770371.cms

Revamp of corporate governance body planned

With a view to promote better corporate governance practices and check frauds, the ministry of corporate affairs has initiated the task of revamping the functioning of the corporate governance body under its aegis, National Foundation for Corporate Governance (NFCG). For this the ministry has appointed Kiran Karnik, former Nasscom president as the new co-vice chairman of the NFCG who has replaced NR Narayana Murthy, chairman and chief Mentor, Infosys.

The ministry is also planning to strengthen its NFCG office by employing more employees to work under its aegis. “For improving the efficiency of operations of the corporate governance body, the ministry is planning to recruit more officers”, said an official.

Corporate affairs minister, Salman Khurshid recently held a meeting with NFCG officials where issues such as the role and responsibilities of auditors and corporate governance were discussed. Apart from this, NFCG is also going to take up the issue of the independent directors and hold a discussion on strengthening their role in the corporate sector. Talking about the need of corporate governance, Salman Khurshid, minister of corporate affairs had earlier said, “The issues related to corporate social responsibility and exclusive growth as an extension of responsible corporate governance is engaging the attention of the ministry, the corporate sector and their stakeholders”. The ministry and industry chamber, Confederation of Indian Industry had set up NFCG in 2004 in partnership with the Institute of Chartered Accountants of India and Institute of Company Secretaries of India in order to improve implementation and enforcement of various laws related to corporate governance. NFCG was set up with a purpose to have better self-regulation in the Indian industry by paying importance to issues related to corporate governance and by providing training and research accordingly.

source:http://www.financialexpress.com/news/revamp-of-corporate-governance-body-planned/487383/#

MCA orders scrutiny of Subhiksha’s books

In another blow to the beleaguered discount retail chain Subhiksha, the Ministry of Corporate Affairs (MCA) has cleared the
recommendations of the Ministry of Corporate Affairs’ southern regional director for inspecting accounts of cashstrapped retail chain Subhiksha.

Acting on complaints filed by a clutch of investors and former employees alleging mismanagement of funds, the ministry on Monday instructed the regional director to go ahead with the inspection. “We have begun the enquiry and asked the company to furnish the requisite information,” the regional director told ET.

The company has a week’s time by which to submit the data called for by the regional director, including the balance sheets, books of accounts, the core activities of the company and members on the board of directors, he added. The regional director said although it wasn’t a time-bound process, the enquiry is being conducted on “priority basis” and would take about three months. The findings would be presented to the secretary of the corporate affairs ministry, he added.

When contacted, Subhiksha Trading Services managing director R Subramanian denied knowledge of any such move. “We have no intimation of any the ministry enquiry ... we have no comment on this as we have no knowledge of this... we cannot speculate on such matters.”

The MCA will check if all procedural norms under the Companies Act (maintaining accounts properly and conducting board meetings etc) are being complied with. In case of any procedural lapses, the managing director can be arrested. It will invite imprisonment of at least two years and a fine of Rs 1,000, a corporate lawyer who did not wish to be named told ET.

Meanwhile, a number of cases have been filed against the retail chain at the Madras High Court. Earlier, the court had appointed a provisional liquidator to control assets of the retail chain in response to a winding up petition filed by Kotak Mahindra Bank, which lent Rs 40 crore to Subhiksha.

It had later stayed the appointment when Subhiksha contended that such an appointment would hamper its corporate debt restructuring process, but asked the company to file financial details for the last three years and bank statements, which it did.

The petition against the amalgamation of Subhiksha Trading Services with Blue Green Construction and Investment filed by some of its creditor banks and investors will be heard on July 2.

TIGHTENING NOOSE



Who will inspect the accounts?



The south zone regional director will look into the account books. The company has a week’s time by which to submit the data called for by the regional director, including the balance sheets, books of accounts, the core activities of the company and members on the board. The MCA will check if all procedural norms under the Companies Act (maintaining accounts properly and conducting board meetings etc) are being complied with.

What is the status of cases against the company?



A number of cases have been filed against the retail chain at the Madras High Court. Earlier, the court had appointed a provisional liquidator to control assets of the retail chain in response to a winding-up petition filed by Kotak Mahindra Bank. But the court stayed the appointment when Subhiksha contended that such an appointment would hamper its corporate debt restructuring process. A petition against the amalgamation of Subhiksha Trading Services with Blue Green Construction and Investment filed by some of its creditor banks and investors will be heard on July 2.

When did Subhiksha land in a soup?



The retailer, founded in 1997, ran out of cash in October 2008 after relying on a ‘high level’ of debt. The unlisted company's operations are nearly at a standstill and it is undergoing a debt restructuring exercise.



source: http://economictimes.indiatimes.com/News/News-By-Industry/Services/Retailing/MCA-orders-scrutiny-of-Subhikshas-books/articleshow/4670317.cms

Corporate governance: A need for fresh perspectives

Over the past six years, Business in the Community’s CR Index has tracked attention by boards to sustainability and corporate responsibility. However, while progress is being made in getting discussions of issues such as climate change and ethical sourcing on to the agenda, BITC and others argue that it is also important to distribute responsibility for these issues across the board rather than relying on one or two individuals.

Executive discussions might even bring in external partners. “It takes enlightened leaderships and part of that is talking to a very broad range of people who monitor what’s happening in an external operating environment,” says Sophia Tickell, executive director of SustainAbility, the consultancy. “Companies need to bring in perspectives that are not necessarily all from inside, where they tend to be focused on the daily running of the business.”

At the same time, for many companies, sustainability is becoming part of daily business – whether that is cutting their energy bills or shoring up ethical sourcing guidelines – and therefore has a variety of implications for the management teams.

“As with any part of the responsible business agenda, we have to be able to explain this in terms of what it means for different business functions,” says David Grayson, head of Cranfield School of Management’s Doughty Centre for Corporate Responsibility. “So for a financial director, this is going to have some different dimensions from a logistics director or marketing director.”

And as companies start to see corporate responsibility not only as a case of simply introducing community investment programmes but also as part of how they operate their supply chains or manage their energy efficiency, a wider group of executives are participating in senior-level discussions.

“There is evidence that sustainability issues are being incorporated into strategy, research and development and other functions that already have strong board representation,” says Ms Tickell.

Nevertheless, for many companies, it remains important to have dedicated corporate responsibility teams with senior officers that report to the board. In a report conducted by Ipsos MORI released in October 2008, BITC found that the percentage of companies with corporate responsibility committees reporting to the board rose from 13 per cent in 2002 to 60 per cent in 2007.

The CR Index also reveals a connection between better performance and the number of individuals on the board with responsibility. For this reason perhaps, recent years have seen the emergence at large companies such as Google, AT&T and SAP of a new C-level position – the CSO or corporate sustainability officer.

Moreover, what is discussed at board meetings is changing. BITC found that in the past year, nine out of 10 companies participating in the CR Index had board-level discussions of sufficient depth to merit inclusion in the minutes, and the number of board members with responsibility for specific aspects of corporate responsibility has increased.

This activity is likely to intensify. “One of the consequences of the crises – financial, economic and in the long-term more severe sustainability crises in terms of water and climate change – is that these demand an improvement in governance,” says Prof Grayson.

Board-level engagement in corporate responsibility allows companies to manage these issues more strategically and to set standards and values and measure performance against targets. It also helps companies to look outward as well as inward, providing impetus for efforts to improve regulation in their sector.

And having an individual on the board with an overview of sustainability strategy can help advance sustainability strategies. An enlightened corporate responsibility officer can, for example, play an important convening role, bringing issues to the attention of the board and explaining their significance to the business.

“That person can play a very key role in enhancing the agenda and helping the board to understand it,” says Ms Tickell. “Because there’s no guarantee that the average board member is necessarily on top of these issues, they need someone to explain them and justify why they’re being addressed in this particular way.”

Companies also need to prevent corporate responsibility from becoming locked into an executive suite silo. “If that’s the case, everything tends to get diluted,” says Ms Tickell. “And it’s not looked at as a genuine threat and opportunity for the business.”

The opportunities look promising at a time when profit margins are under pressure. In its research with Ipsos MORI, BITC revealed that companies consistently participating in the CR Index outperformed their FTSE 350 peers on total shareholder return between 2002 and 2007 by between 3.2 per cent and 7.7 per cent a year.

However, to reap these business benefits, companies need to ensure employees throughout the organisation are aware of the need to improve performance in areas such as ethical sourcing and carbon reduction, says Prof Grayson.

“Leadership from the top is essential,” he says. “You need the top-down messages – but you also need an empowered workforce from which innovation and ideas can bubble up. It’s not a case of ‘either, or’, the genius is getting both.”
source: http://www.ft.com/cms/s/b992d6d4-548d-11de-a58d-00144feabdc0.html

Sustaining Investor Confidence: CD seminar on corporate governance

As the opening session on a series of discussions on corporate governance, it was only appropriate that it that focus on the most effective framework needed for organisational decision making. KMPG CEO Russell Parera said that what was needed was a culture that encouraged debate and dissent, something one doesn’t always see on Indian boards as people tend to belong to the same inner circle.

Following up on that, Zia Mody, managing partner, AZB Partners added that if a person was on the board of a company as an independent director, he or she was expected to ask awkward questions, which rarely was the case. “However, that in itself cannot help prevent a fraud as directors could be given wrong information,” she added. Of course, it takes a lot more than just having standards in place. It’s also about how these are implemented. It would, for instance, be almost pointless to have a whistleblower policy in place, and link it directly with the CFO. The panel agreed that it was best to give authority to an independent director or board member when it came to matters of compliance and governance.

Lakshminarayana KR, chief strategy officer, Wipro added that a lot also depended on how much time the board members had, to devote to each company on whose board they served, and the amount of access provided by the company to the mid and lower level of employees so that directors could truly get a sense of what was happening. Joseph Massey, MD & CEO of the Multi Commodity Exchange had a relevant point to make. “Corporate governance has to be treated as a normal part of life when running a company-it’s just one more add-on.

The focus should be on running the business, corporate governance just gets inculcated,” he said. While shareholder activism in India has still to take off, this is partly also because companies are shielded from the reputational risk that class action lawsuits bring with them. Parera mentioned that as companies would increasingly grow aware of this, shareholder activism too would rise in a healthy way. As the session ended, all the panellists agreed that there was no such thing as too much disclosure and while no one wanted more regulation in the wake of the Satyam scandal, what was needed was better implementation of existing regulations.

Issues in the implementation of the Corporate Governance Code

The moderator - Ganesh Ramamurthy, director, governance risk and compliance services, KPMG India, set the ball for the second session rolling, by establishing that while the corporate governance norms in India are at par with the best in the world, ensuring that these norms are always implemented is where the trouble comes in. Commenting on the difficulty of implementing these norms, Stephen Matthias, partner, Kochhar & Co said that it was important to have all the corporate governance codes together to ensure better implementation rather than have the implementation governed by multiple bodies.

source:http://economictimes.indiatimes.com/Features/Corporate-Dossier/Seminar-on-Corporate-Governance-/articleshow/4591408.cms

Independent director, anyone?

Corporate governance has been the buzzword ever since the Satyam fraud came to light in January. Companies, consultants and regulators have waxed eloquent about this concept, but now they face a serious issue: Independent directors are leaving in droves. So what is to be done?

Directorsdatabase.com, a joint venture of Prime Database and Bombay Stock Exchange, reports that 265 independent directors have quit 211 company boards since January. This mass exodus has spooked the market regulator, the Securities and Exchange Board of India (Sebi), which has now sought counsel from one of its advisory panels.
This is a thorny issue, one compounded by last month’s controversy surrounding investment banker Nimesh Kampani. Andhra Pradesh authorities have charged Kampani for the failure of Nagarjuna Finance, a company on whose board he served as an independent director, to pay back depositors. In most business circles, this charge is now being seen as a travesty. True or false, the charge has rejuvenated the question about independent directors, although from a different angle.
Satyam showed independent directors, who knew nothing or did nothing about the company’s fraud, in negative light, and provoked a media and public backlash against such directors. The scandal prompted an important question for regulators: Are the rules and regulations governing directors too lax? Kampani’s story prompts the opposite question: Are some rules too harsh?

Regulators will have to think through these questions. While independent directors can’t be held liable for matters that don’t reach the company’s board, holding them accountable for issues under the board’s purview is fair game. A recent Prime Database report noted that 75% of independent directors are the promoters’ relatives or friends.

This makes mockery of Sebi’s 2005 Clause 49 that underscored corporate governance, and later mandated that independent directors comprise as much as 50% of a board.
But this doesn’t mean such directors are useless. The Satyam scandal may have exposed flaws, but its recovery has shown that decent hands at its helm, à la Kiran Karnik and Deepak Parekh, can make a real difference.

source:http://www.livemint.com/2009/05/27213010/Independent-director-anyone.html?h=B

Unified approach needed from cos, regulators on governance: KPMG

With corporate governance practices of Indian companies coming under scanner, global consultancy KPMG believes industry bodies such as Nasscom, CII and regulators such as SEBI should have a more unified approach for developing benchmarks in go od governance practices.

“The industry bodies such as CII, Nasscom and regulators such as SEBI should look at a more unified approach towards handling corporate mis-governance and at developing benchmarks in good governance practices,” KPMG Director (Governance Risk and Complian ce Services), Mr Ganesh Ramamurthy said.

According to a survey of KPMG on the state of corporate governance in India, majority of respondents believe that while corporate governance should be practiced through principle-based standards and moderate regulations, there is a need for stronger regu latory review and exemplary enforcement.

The survey said that Indian companies believe that the spirit and practice of governance regulations and practices need to be intertwined.

One of the key concerns related to corporate governance is risk management, with nearly three-fourth survey respondents saying these practices need to be improved.

“Indian companies have some way to go when it comes to risk management measures. Also important to consider is impact of changes to strategies and priorities on risk profile,” Mr Ramamurthy said. - PTI

source:http://www.thehindubusinessline.com/blnus/14121713.htm

Anil Ambani firm smuggled in yacht

The customs department has alleged that Anil Dhirubhai Ambani Group (ADAG) company Ammolite Holdings has violated the Customs Act by “smuggling in” a luxurious yacht, which is believed to be a gift by Anil to his wife.

“The imported luxury yacht ‘Tian’ was imported in contravention of Section 111(m) of the Customs Act, hence is liable for confiscation,” Assistant Commissioner of Customs SR Vichare stated in reply to a petition filed by Ammolite Holdings challenging seizure of the yacht.

The court has given time to ADAG until on Friday to reply to the allegation.

source:http://www.hindustantimes.com

BSES asked to refund bill

Pulling up BSES Yamuna for sending an unaccounted bill of Rs 1.5 lakh to a consumer, the state consumer commission has slapped a fine
of Rs 50,000 on the discom and also directed it to refund the bill amount to the complainant.

Sardarni Harbans Kaur, a resident of village Kishan Garh in Vasant Kunj, complained that her meter was burnt and rendered dysfunctional in a fire caused by a high tension wire that passed over her house on July 9, 1999. A non-defaulting customer since 1985, she lodged a report with the junior engineer of the department but nobody turned up to rectify the damage or restore electric load for two years.

Then she requested BSES to replace the meter but the discom slapped a bill of Rs 1,52,927 alleging power theft by the consumer for 2 years. On BSES' threat that an FIR will be lodged in case the bill was not paid, she paid 50% of the amount on the very day and the balance was deposited in two instalments.

However, BSES said that on receiving the complaint, the premises of the consumer was inspected on September 1, 1999 and it was found that the seal of the meter was tampered with. Therefore, a case of Fraudulent Abstraction of Energy was registered.

Rejecting the discom's plea, Justice Kapoor said: "On receiving the complaint, the discom should restore electricity immediately and ensure that necessary action is taken at the site. The burnt meter should be removed and tested to see the cause of the fire. A new meter should be provided within three days. Thereafter, a bill based on the estimated energy consumption pattern of 6 months prior to and 6 months after the period during which meter remained defective has to be raised."
source:http://timesofindia.indiatimes.com/articleshow/2929868.cms