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The government has found financial irregularities in 160 companies — a whopping 30 of them owned by it — thanks to the early warning system (EWS) put in place last year.

After the nearly Rs 10,000-crore Satyam fraud last year, the Ministry of Corporate Affairs (MCA) in September had developed an EWS to detect corporate frauds. The software-based fraud detecting system scans companies based on 10 financial parameters set by the ministry.

“We have asked the Registrar of Companies to inspect the books of about 130 companies based on the preliminary findings of the EWS and some 30 PSUs would be referred to the Comptroller and Auditor General,” an official source said.

The sources said EWS had detected discrepancies like fund diversions in own subsidiaries as well as other firms, irregularities in filing balance sheets, and asset-liability mismatch.

“There are some blue-chip companies against which the EWS has given out alerts and we are also carrying out inspections, both invasive and non-invasive, of their books as per Sections 209 and 234 of the Companies Act,” the official said, without divulging the names of the companies in question.

With the early warning system, the corporate affairs ministry sources said unusual developments are looked into by scrutinising the quarterly results of companies, their public announcements, filings with exchanges, tax returns, and media reports, among others.

On the effectiveness of the system to prevent a Satyam-like fraud, which went on undetected for years, Corporate Affairs Minister Salman Khurshid had earlier said,” Essentially, I put it like a medical test…Lipid profile test to tell if your lipid profile is going wrong so that we step in immediately.”

The objective of the EWS would be to develop a permanent system for scanning everybody, he said.

The system will monitor those information “which the public has the right to know, which are in the public domain and which can give indications of performance…After all, that’s how people judge performance in the marketplace,” the minister had said.

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    By not publishing the name of the companies against whom the EWS had issued alerts, even including bluechip companies, the confidence levels of public investors are further destroyed . I feel the ministry must release the names of such companies so that investors can take a stand on their investment in these companies.

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June 2024