Even as the Centre has launched a damage control exercise over the Satyam Computer Services scandal, in a startling disclosure, India’s stock exchanges have revealed that as many as 1,317 listed companies have not filed their corporate governance report for the quarter ended September 30, 2008.
For the July-September 2008 quarter, 1,228 companies listed on the Bombay Stock Exchange and 89 companies on the National Stock Exchanges have not submitted their corporate governance reports to these exchanges. NSE has suspended trading in the stocks of the 89 companies while BSE is yet to decide its course of action.
“Not filing the report is a clear violation of the listing agreement,” Somasekhar Sundaresan, partner at law firm J Sagar Associates, said. Clause 49 of the listing agreement, which is an umbrella regulation on corporate governance norms, mandates companies to submit a quarterly report, signed either by the compliance officer or the CEO, to the stock exchange within 15 days from the close of a quarter.
More than four months after the close of the second quarter, these companies have not filed their governance reports. While the Satyam scam seems to be the motivation behind these disclosures by the exchanges, official sources said the markets regulator Securities & Exchange Board of India (Sebi) plans to act tough on companies violating regulatory norms.
The list of companies that have not submitted corporate governance report to exchanges include Aditya Polymers, Alpic Finance, Balmer Lawrie Freight Containers, BIL Industries, Cyberspace Infosys, Dalmia Industries, DSQ Software, DSQ Biotech, Eureka Industries, IDBI Bank, Indiabulls Retail Services, Lanco Industries, Rathi Ispat, United Breweries and Vardhman Industries Ltd, among hundreds of others.
“Governance issues are in focus now. You will see a lot of action in coming days,” said a senior NSE executive, indicating there will be no laxity in enforcement practices.
BSE chairman Jagdish Capoor expressed surprise over the number of companies in the list. “I have not seen the list yet. It is an operational matter and does not necessarily come to the (BSE) board. The suspension of trading will be looked into at a later stage.”
Sebi is adopting a now tougher stance and wants companies to adhere to the guidelines detailed in Clause 49. “Normally, exchanges have to enforce the listing agreement. I understand that the follow-up action will be faster in the light of the current developments,” a senior official at Sebi said, alluding to the developments in the Satyam Computers Services case.
Clause 49 requires companies to furnish details of the board composition, directors’ compensation and disclosures, code of conduct, audit committee–its meetings, powers, role and reviews– and other disclosures, including the basis of related party transactions and CEO/CFO certification.
A Lanco group spokesperson said he could not comment on the Lanco Industries’ lapse. “We are only the second largest shareholder in Lanco Industries and do not manage it,” he said.
A United Breweries spokesperson claimed that the report had been submitted in time. “I have checked and I can confirm that the mandatory corporate governance report for the quarter ended September 30, 2008 has already been duly submitted to Sebi on October 14, 2008 and we are in possession of an acknowledgement to this effect,” the UB group spokesperson said. Incidentally, the report has to be filed with the stock exchanges, not the regulator.
Another damning list prepared by BSE and NSE shows that a total of 138 companies have not complied with Clause 40A of the listing agreement, which requires all listed companies to maintain a public shareholding of at least 10% or 25% on a continuous basis.
The list includes companies like IL&FS Investmart (public holding of just 6.14%), Dabur Pharma (9.11%), Century Plyboards (9.44%), Gujarat State Financial Corporation, Nagarjuna Agrichem, Sahara One Media & Entertainment and Seamec Limited, among others. These companies would be required to dilute their equity to comply with the 25% minimum public shareholding requirement, which could be difficult in the current market conditions.
