Saibal C. Pal
It was the then wandering monk, Swami Vivekananda who instilled the idea of a steel plant in India in the then merchant Jamshedji N. Tata during their journey in a ship together form the port of Oklahama in Japan to Boston in USA. The first steel plant in the country came up at Jamshedpur in the year 1912 under the entrepreneurship of Jamshedji N. Tata. Swamiji also told Jamshedji that the know how for setting up the plant should be brought form the west but the production process should be developed in the country itself. Jamshedji was a visionary with socialistic outlook for development of research and development he donated land and money for setting up the now Indian Institute of Science at Bangalore. Swamiji was offered to head the institution which could not be honoured by him due to pre-occupation. Jamshedji was the first paid managing director of Tata Iron & Steel Limited . He considered himself an employee of the company. A monk and a visionary entrepreneur set the ball rolling for industrialization by Indians in the country. The management style of Jamshedji N.Tata shaped the future functioning style of the Tatas . Presently, Infosys Technologies Limited the information technology major has also earned respect for their style of functioning. To respect the values followed by the Tatas which was carried on by J.R.D. Tata, the Board room of Infosys has named their Board room after the legendary J.R.D. Tata. What has held the Tatas so high in esteem is their regard for morality and ethics in the function of their organizations.
Morality and ethics lay the foundation of our ways of life. Great personalities in every walk of life have valued them. Small things give birth to big things. A small but significant incident in the life of Mahatma Gandhi is appropriate for reference at this juncture. Kasturba Gandhi, wife of the Mahatma was the treasurer of all funds collected by Gandhiji for his movement. Every penny collected was accounted for on daily basis by Kasturba Gandhi. Once Kasturba Gandhi could not explain the expenditure of Rs 4/- out of the collection on a single day. Gandhiji made it a point to see that the Auditors pointed out discrepancy. A man of Gandhiji’s stature who left his practice as a Barrister in those days having an annual income of $ 20,000 for the cause of the nation had the entire nation at his beck and call could have easily sorted out the issue but Gandhiji chose to let his wife face the public instead of guarding her.
The ultimate aim of corporate governance is disclosure and transparency which finds its root in morality and ethics. Corporate world is very much related to morality and ethics. In 1913, John D. Rockfeller, the industrialist established the Rockfeller Foundation for the well being of mankind through the out the world from the wealth generated from his business empire. The force behind the establishment of the foundation was none other than Swami Vivekananda who brought out the consciousness in Rockfeller that the wealth he owned was actually that of God and Rockfeller was only a Trustee. Rockfeller at first showed arrogance at Swamiji but after a week returned to Swamiji to show him a newspaper report of his huge donation for the welfare of mankind and asked Swamiji if his action fulfilled Swamiji’s desire and stated that he should be thanked for the same. Swamiji without paying any head stated that Rockfeller should thank him instead as it was only due to Swamiji he could do such an act. From then the arrogant Rockfeller became the great donor Rockfeller. Since then the foundation is serving man kind and to-day it is spending over $ 1400 crores each year for the welfare of the people in the field of education, health, agricultural science, industry and social welfare activities. So morality and ethics are related to each other since long. A social reformer like Swami Vivekananda an advocate of morality and ethics influenced both in the formation of industry and the deployment of wealth generated from industry for the welfare of mankind.
Ramkrishna Mission and Math were both set up by Swami Vivekananda based on the teachings of Ramkrishnadeva. The institutions dedicated to philanthropy and welfare of mankind are more than one hundred years old. They still continue to exist doing service to mankind and at the same time build characters based on morality and ethics for the service to various fields of activity. The secret of the success of the twin institutions lies in the morality and ethics practiced by all connected with them. Fundamental practice includes maintenance of accounts by the institutions without any relaxations. Its operation is depicted in through the incident which took place immediately after the sudden demise of Swami Vivekananda on 4th July,1902. Just 18 days after on 22nd July,1902 the Trustees of the institutions met and the first agenda of the meeting included the discussion on the private fund of Swamiji which amounted to Rs 5400/- comprising of Rs 3,700/- valued Government Papers and Rs 1700/- in cash. It was Swamiji’s earnest desire that the amount should be given to his mother. But the said amount could not be given and only after deduction of Rs 59/- for the loan payable by Swamiji to one Shantiram Ghosh being Rs 9/-, payment of Rs 20/- towards mosquito nets for the disciples and Rs 30/- towards eye operation of a Swamiji, the amount was decided t be disbursed. The second agenda included discussion on the chqeue given to Swamij by a disciple for return ship fare for an American disciple. It was decided that this amount would be deducted unless one paid the amount. The above incidents show how the Math and Mission maintained strict discipline in respect of all. It is due to the high value of morality and ethics practiced the Ramkrishna Math and Mission continue to be in existence.
To-day Rockfeller, J.N.Tata are not remembered for their wealth but for their contribution to the welfare of mankind. Their achievements were influenced by the strict practices followed not not only by the foundation, missions but also by their industries. To-day the trusts of Rockfeller hold shares in corporates and the Trustees do are not Board members of the corporates in which the trust hold shares. The trusts closely monitor the activities of the companies by playing their role as investors by suggesting means for better achievement wherever thought appropriate. They aid better corporate compliance for better management for higher shareholder value.
Today with the increase in popularity of investment culture world wide transparency and disclosures are the key words in corporate management. Listed companies are compulsorily required to announce quarterly results and the listing agreement entered by the stock exchanges with the companies call for compliance of several actions leading to better transparency. In the absence of transparency and disclosures there is bound to be negative impact on the economy.
To bring about ideal conditions in the capital market for equilibrium in the economy the Securities and Exchange Board of India Act,1992 (`SEBI ACT’) was enacted with effect from 30th April,1992. Preamble to the said Act states it was being enacted to: (i) protect the interest of the investors in securities; (ii) promote the development of the securities market; (iii) regulate the securities market; and (iv) provide for the matters connected with, or incidental to, the aforesaid purposes. This necessitated the introduction of rules, regulations, institutions and their inter-relationships, instruments, practices, infrastructure and policy framework to provide ideal conditions for issuers of securities, the investors and market intermediaries. To the issuers, it provides a market place for raising finance in simple and efficient manner in line with advanced economies. For investors it aimed to provide protection of their rights and interest through adequate, accurate, authentic information and disclosure of information on a continuous basis. To the intermediaries, it aimed to offer competitive, professionalized and expanding market with efficient infrastructure so that they are able to render better service to the investors and issuers.
A company on being listed with the stock exchange is required to adhere to the requirements of the listing agreement entered with the companies. They are to be transparent in their activities and be honest in their reporting and disclosures. Unless correct information is furnished by the companies the economy is bound to suffer . Any suppression of facts is bound to lead to crashes on the economic front leading to several consequences.
To eliminate duplication and doubt in following the law, the Companies Act, 1956( `the Act’) was amended with effect from 13th December,2000. To empower SEBI to deal with various provisions, it was bestowed with certain overriding powers where no other authority can interfere. S 55A was inserted in the Companies Act,1956 giving SEBI over-riding powers in the application of Ss 55 to 58, 59 to 81 (including Ss 68A,77A and 80A) 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207; and in respect of : (i) issue of securities to the public; (ii) transfer of the said securities offered to the public ; and (iii) non-payment of dividend to the holder of the securities. SEBI has also been empowered to prosecute defaulting `listed public companies’ defined under clause (23A) of s 2 which defines a public company as one which has any of its securities listed in any recognized stock exchange. Department of Company Affairs (DCA), however, continues to regulate unlisted companies in respect of the aforesaid sections.
Under the Act, companies are classified into:
(i) `private company’ defined in s 3(1)(iii);
(ii) `public company’ defined in s 3(1)(iv) which includes `listed public companies’ defined under s 2(23A).
As per Rule 19 of the Securities Contracts (Regulation) Rules, 1957 (`Regulations’) listed securities on recognized Stock Exchanges are required to comply with various provisions of the rules frame. A public company desirous of listing its shares shall apply to the Stock Exchange with particulars and documents. S 73 of the Companies Act provides for compulsory listing of shares offered to the public for subscription through a prospectus mentions that the company intends to apply for listing . Two pre-conditions for of listing include:
(i) fulfillment of minimum subscription (s 69) criteria ; and
(ii) obtaining listing permission from the stock exchanges listing is sought. ( s.73 )
On listing of the shares the company is referred as a listed public company (s 2(23A) ). Listing of shares may be either through an initial public offer or through documents containing offer of shares for sale through a deemed prospectus( s 64).
On listing with a stock exchange such securities ( shares and debt instruments ) shall be subject to rules and bye-laws of the stock exchange. Companies have to comply with such further listing requirements as a general condition for continued listing. Companies are required to abide by the agreement executed by and between the stock exchange and the company. Listing agreements serves as the link between a company, the stock exchange and the investors including resident individuals, NRIs, OCBs, FIs, Banks, FIIs, mutual funds, employees, Corporate Bodies, Societies registered under the Societies Act, and a host of others. Listing in Stock Exchanges give international exposure of listed shares. Holdings of NRIs, OCBs,FIIs are regulated by the FEMA, 1999 with RBI as the regulating authority. Listing agreement calls for transparency of the management, operation of a company and any change in the management, capital or significant incident is required to be reported to the stock exchange. The Depositories Act, 1996 was enacted with effect from 20th September, 1995 with the object of regulation of depositories of securities and matters connected therewith. With the depositories, shares are compulsorily required to be dealt in electronic mode only and such shares are popularly referred to as the demat form are dealt through dematerialised accounts maintained by each shareholder with licensed depositories. Advantage of dematerialised form is that transactions do not attract stamp duty on transfers. Presently, The Bombay Stock Exchange Ltd., (BSE) and the National Stock Exchange of India Ltd., (NSE) are the two main exchanges in the country with the others having lost there importance. Non-adherence to the clauses of the listing agreement leads to show cause, suspension and delisting of the securities by the Exchange. BSE is the oldest exchange in the country being established way back in 1875. In 1994, the National Stock Exchange of India Limited (NSE) was formed. Average price level at the stock market is judged by the Sensex (BSE Index) and NIFTY (NSE Index). BSE index includes 30 securities, the market quotation of which decide the index. NIFTY includes 50 securities and their average price decides the price level at the stock market. Till the eighties, there was no index to measure the average price of the selected scrips. In 1986, The Stock Exchange, Bombay announced the Market Capitalization Stock Index and the same became the barometer of the Indian stock market. Termed as the Sensex, it is scientifically designed. It is based on globally accepted construction and review methodology. Base year of the Sensex is 1978-79 with base value of 100. This is often indicated by the notation 1978-79 = 100. The index was initially calculated based on the “Full Market Capitalization” methodology but the same was shifted to the “Free-float Market Capitalization” methodology of index construction which is globally regarded as an industry best practice. All major index providers namely, MSCI, FTSE, STOXX, S&P and Dow Jones use this Free-float methodology.
Sensex is accepted to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time being from 1979 onwards. Sensex has become one of the most talked about brand name in the country. From the early nineties the stock market experienced hightened activity in terms of various bull and bear runs. Sensex captured all such events in the most judicial manner. Booms and busts of the Indian Capital Market are reflected through the Sensex. Level of the Sensex at any point of time reflects the Free-float market value of 30 component stocks relative to base period. Market capitalization of a company is determined by multiplying the price of its shares by the number of shares issued by the company. To determine the free float market capitalization, market capitalization is multiplied by the free float factor.
Calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the index by a number called the Index Divisor. The 30 companies included in the index include ACC, Ambuja Cements, Bajaj Auto, BHEL, Bharti Airtel, Cipla, DLF, Grasim Industries, HDFC Bank, Hindalco Industries, Hindusthan Unilever, ICICI Bank, Infosys, ITC, Mahindra & Mahindra, Maruti Udyog, NTPC, ONGC, Ranbaxy Laboratories, Reliance Comm., Reliance Energy, Reliance Industries, Satyam Computer Services, State Bank of India, Tata Consultancy Services, Tata Motors, Tata Steel and WIPRO. Divisor is the only link to the original base period value of the Sensex. It keeps the index comparable over time and is the adjustment point for all index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time. BSE also calculates a dollar-linked version of Sensex and historical values of the index are available since its inception.
Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for index calculation and assignment of weight to stocks in the index. Free-float market capitalization is defined as that proportion of total shares issued by the company readily available for trading in the market. In India, BSE pioneered the concept of Free-float by launching BSE TECK in July 2001 and BANKEX in June 2003. Sensex at the BSE closed at 20286.99 on 31st December, 2007 and is currently between 9000 and 10000 as result of the world-wide meltdown.
Stock exchange indices of India are compared with the indices of the other countries namely, Nasdaq of the USA, FTSE 100 of the UK, Nikkei 225 of Japan, Kopsi of Korea, IBOV of Brazil, STI of Singapore, Shcoomp of China, HSI of Hong Kong and Jakarta Composite of Indonesia. The indices are significant in the international stock market perspective and are readily referred to assess the economic scenario in the countries.
Apart from the minimum level of public holding of listed companies and other criteria, the listing agreement provides for compliance of other disclosures. Listed companies are required to furnish unaudited financial results on a quarterly basis with effect from the quarter ending on 31st March,2000 within one month form the end of the quarter to the stock exchange and will make an announcement to the exchange immediately within 15 minutes of the closure of the Board Meeting or Meeting of a Sub-Committee of the Board of Directors (consisting of not less than one third of the Directors) in which the unaudited financial results are placed and also within 48 hours of the conclusion of the Board or its sub-committee meeting in at least one English daily newspaper published circulating in the whole or substantially the whole of India and one newspaper published in the language of the region, where the registered office of the company is situated. The Board of Directors or its sub-committee should take on record the unaudited accounting results, which shall be certified by the CEO and CFO of the company and signed by the Chairman/ Managing Director/ Whole-Time Director. In the absence of all of them, it shall be signed by any other director of the company who is duly authorized by the Board to sign the financial results. The Company is required to l inform the stock exchange where the securities are listed about the date of the Board Meeting at least 7 days in advance and shall also issue immediately a press release in at least one national newspaper and one regional language newspaper about the date of the Board or sub-committee meeting for the unaudited results.
Corporate Governance (Cl.49)
Success of corporate culture depends on its governance. Cl 49 of the listing agreement deals with compliance to ensure Corporate Governance and supplements s. 285 of the Companies Act to the extent that it specifically states that the Board shall meet at least four times a year with a maximum time gap of four months between any two meetings of a listed company. For such meeting at least seven days’ notice have to be given. S 286 does not provide for any time frame. Similarly seven days’ notice is required to be given for holding meeting of Audit Committee, Remuneration Committee and Shareholders Grievance Committee. The clause, further states that a company will have independent directors on its board. Such number will have to be at least fifty per cent if the company has an Executive Chairman. In case of a part-time Chairman the board may comprise of at least one third independent directors of its total strength. Any change in directors will have to be informed to the stock exchange.
Conditions of continued listing (Cl.40A)
Cl. 40A of the listing agreement deals with the conditions for continued listing of securities. On listing being granted, the Company shall maintain on a continuous basis, the minimum level of non-promoter shareholding. The company is required to maintain, public shareholding of at least 25 per cent of the total number of issued shares. Where the company offers or has in the past offered to the public to the extent of at least 10 per cent of the issue size in terms of rule 19(2)(b) of the Securities Regulations it agrees to maintain on a continuous basis, public shareholding of at least 10 per cent of the total number of issued shares . Where the number of the shares are two crore or more and the market capitalization of such company in respect of shares of such class or kind is Rs 1,000 crore or more, it agrees to maintain on a continuous basis, public shareholding of at least 10 per cent of the total number of issued shares. On May 1, 2006, where the public shareholding in respect of shares is less than 25 per cent or 10 per cent, as the case may be, of the total number of issued shares the company agrees to increase public shareholding to 25 per cent or 10 per cent as the case may be within such period as may be approved by the specified Stock Exchange (SSE) but not exceeding two years form the said date. Provided that the SSE may, on an application made by the company and after satisfying itself about the adequacy of steps taken by the company to increase public shareholding and genuineness of the reasons submitted by the company for not reaching the minimum level of public shareholding and after recording reasons in writing, extend the time to compliance with the requirement of minimum level of public shareholding by a further period not exceeding one year. Where the public shareholding in a company is less than 25 per cent or 10 per cent, as the case may be, the company agrees not to dilute in any way in public shareholding, except for supervening extra-ordinary events including but not limited to events specified in sub-clause (vii) of clause 40A with the prior approval of the SSE. The clause further states that the company agrees not to make any allotment of its shares to its promoters or entities belonging to its promoter group, except on account of supervening extraordinary events, including ,but not limited to events specified in the sub-clause.
Towards greater transparency of public shareholding in listed companies, the Finance Ministry has proposed to raise the public shareholding limit for all listed companies to a minimum of 25 per cent from the existing 10 per cent. The ministry invited public opinion to its discussion paper on this subject by February, 28. Amendments to the Securities Regulations are likely to come into effect shortly to reflect the principle of wider shareholding with the public.
The proposed increase in public shareholding will apply to both public as well as private sector companies. There are about 250 big and small listed companies with promoter holding of over 75 per cent each and list of such prominent companies in the private sector include DLF (88%), TCS (78%), Reliance Petroleum (75%), Unitech (75%), Wipro (80%), Mudra Port (81%), Adani Enterprises (75%), VSNL (76%), Sun TV Inetwork (77%) Lanco Infratech (75%) and the list of public sector companies with over 75 % include NTPC (90%), NMDC (98%), MMTC (99%), SAIL (86%), IOC (80%), Power Grid Corpn. (86%), National Aluminium (87%), Hindustan Copper (100%), Neyveli Lignite (94%), Power Finance (90%). The ministry aims at larger float of securities in the hands of small investors. India is experiencing a larger public holding in companies but strange enough the word, ‘public’ remains undefined in the listing agreement. The ministry reasons that since the word ‘public’ has not been defined so far, it could mean ‘non-promoters’ and include Financial Institutions, Foreign Institutional Investors, mutual funds, employees, NRIs / OCBs, private corporate bodies, etc. thus making the floating stock insignificant despite the best attempts to give a larger exposure of the securities in the market.
The ministry opines that large number of shares distributed among large number of shareholders is essential for the sustenance of a continuous market for listed securities for liquidity to the investors and discovery of their fair price. Larger the floating shares with less number of shareholders, less is the scope of market manipulation. To ensure this, the securities laws prescribe initial and continuous listing requirements. If the proposal is approved it is expected that there will be no discretion left in the hands of promoters. The powers to relax any condition of listing with respect to government companies are proposed to be withdrawn.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
In exercise of the powers conferred by s 30 of the SEBI Act, effective 20th February, 1997, the Board with the approval of the Central Government, announced the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (`TAKE-OVER CODE’). It repealed the earlier code of 1994. As per Reg 7 of the Take-Over Code any acquirer who acquires shares or voting rights which (taken together with the shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent or fourteen per cent or voting rights in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the Stock Exchanges where shares of the target company are listed. Clause 2(o) of the Regulations defines ‘Target Company’ to mean a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired. In terms of Reg. 7(1) the reporting is to be given compulsorily in a format. The above disclosure would have to be within 2 days of:
(i) the receipt of intimation of allotment of shares; or
(ii) the acquisition of shares or voting rights, as the case may be.
Reg 7(1A) states that any acquirer who has acquired the shares or voting rights under sub-regulation (1) or of regulation 11 which includes persons who are acting in concert, shall disclose purchase or sell aggregating 2 per cent or more of the share capital of the target company to the target company and the stock exchanges where shares of the target company are listed within 2 days of such purchase or sale along with the aggregate shareholding after such acquisition or sale.
For the purposes of the sub-reg (1) & (1A), the term ‘acquirer’ includes shares pledged. Bank and Financial Institution are included in the case of a pledge with them. The acquirer shall make a disclosure to the target company and the stock exchange within 2 days creation of pledge.
Every Company, whose shares are acquired under Reg. 7(1) and (1A) shall disclose to the Stock Exchange the, the aggregate shares held by each of such person within 7 days of the receipt of information.
As per Reg. 8(1) every person including a person mentioned in Reg 6 holding more than 15 per cent voting rights in any company, shall within 21 days from the financial year ending March 31 make yearly disclosures to the company, in respect of the holdings as on 31st March.
A promoter or every person having control over a company shall within 21 days from the financial year ending on March 31, as well as the record date of the Company for the purpose of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that Company to the Company [Reg. 8(2)].
Every such Company on receipt of intimation of the above shall report to the Stock Exchanges within 30 days of 31st March as well as 30 days of the record date for the purpose of declaration of dividend. Every such company shall maintain a register in the specified format to record the information received under sub-reg (3) to Reg 6, sub-reg (1) of Reg 7 and sub-reg (2) of Regulation 8 [Reg(4)].
SEBI (Prohibition of Insider Trading) Regulations 1992
In exercise of the powers conferred by s 30 of the SEBI Act the Board with the previous approval of the Central Government, framed the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 1992 (`INSIDER REGULATION’).
As per Reg 13 any person who holds more than 5 per cent shares or voting rights in any listed company shall disclose to the company in the prescribed form the number of shares or voting rights held by such person, on becoming such holder within 4 working days and includes the same provisions a Director or Officer of the company holding 5 per cent shares or voting rights.
Continual Disclosure [Reg. 13(3) & 13(4)]
Any person shall disclose to the Company if there is a change in shareholding resulting in fall of the shareholding below 5 per cent. For change which exceeds 2 per cent of total shareholding or voting rights in the company reporting is also to be done.
For a Director or Officer, change in shareholding or voting rights shall be disclosed if any where the change exceeds Rs 5 lakh or 25,000 shares or 1 per cent of total shareholding of voting rights, whichever is lower.
Disclosure by company to stock exchange [Reg. 13(5) & 13(6)]
The disclosure mentioned in sub-regs (3) and (4) above shall be made within 4 working days of : (a) the receipt of intimation of allotment of shares or (b) the acquisition or sale of shares or voting rights, as the case may be. The listed company inturn shall disclose to all stock exchanges on which the company is listed within 5 days of receipt of the same.
As per Cl. 40B of the listing agreement whenever there is a change of control of the management of the company the person who secures the control of the management of company shall comply with the relevant provisions of the Take-over Code.
Cl. 35 of the listing agreement requires the company to submit Statement showing the shareholding pattern within 21 days from the end of each quarter to the Stock Exchanges. Apart from the aforesaid the listing agreement provides for compliance of the various provisions included in the listing agreement. Cl. 16 of the listing agreement provides for book closure and Clauses 19 and 20 include provisions for declaration of dividend. Cl 24(g) includes criteria for submission of a scheme of amalgamation/ reconstruction also to the Stock Exchange at least 30 days before it is presented t o the Court and Cl 24(h) provides for obtaining of fairness opinion from independent merchant bankers in respect of valuation of assets/shares.
Apart form the reportings listed companies are required to furnish a number of information including information which are considered price sensitive.
Capital market in India has attained maturity with the rules and regulations in place for its participants under the superintendence and control of SEBI. On 1st January, 2008, the sensex touched 20286.99. The index had touched 21,000 plus in the month being the highest index recorded so far. All time closing high was recorded on 8th January, 2008 with Sensex closing at 20873.33. However, on 21st January, 2008, BSE Sensex was reduced by 1900 points and the market finally closed at 18973.33. Sensex is again 17970.02 and Nifty is 5374.65 on 7th April,2010. Things are looking up but at the same time calls for caution. SEBI has come out revised norms on financial results in their circular date 5th Apri,2010.
There are y 7793 listed public companies on the BSE (April, 2008) and 1228 on the NSE(31/3/2007). There are several other listed public companies with the other exchanges. India has the second highest number of listed companies in the world after the US. The law, rules and regulations have been amended from time to time to strengthen the market and the market has surely emerged stronger.
Even with the compulsory reportings and disclosures by the listed companies, in September, 2008 the world witnessed the greatest shock with the filing of the bankruptcy protection by Lehman Brothers Holdings, the over one hundred and fifty years old investment banker, in the USA. The investment banker had announced a loss of $ 3.9 billion net loss for the third quarter ending August,30, 2008. Merrill Lynch faced adverse situation and was bought by Bank of America for $ 50 billion. Fannie Mae and Freddie Mac having incurred loss was taken over by Federal Reserve in September followed by AIG being funded by Federal Reserve. The debacle is not restricted to USA alone, the UK and other European countries followed. UK also faced adverse conditions and quickly nationalized the defaulting banks to avoid bankruptcy. Iceland considered the leading world economy was declared bankrupt with the crash in stock prices. Brazil, Argentenia followed. The impact hit India in the first week of October,2008. Sensex crashed thereafter and the market felt the world wide effect. Realty stocks suffered with stocks of all other sectors following. Close to this in the beginning of the year 2009, India witnessed the debacle of Satyam. Post Satyam episode the regulatory authorities have woken up to plug loop holes. Investigations revealed that the greed of the promoter of Satyam led to the downfall of the company which had resorted to false reporting. It was proved once again that rules are important but it is ethics which can make the implementation of the rules fruitful.
The question that immediately arises is that with so many reportings, disclosures and transparency the sensex could not fight the onslaught it had to fall a prey to the adverse market trend. Hypothetically, it makes one think that if disclosures by corporates were full proof then why were the Indian industries affected. Fundamental of transparacy is observance of moral and ethical values. Unless the practices are followed rigorously such economic debacles would not be uncommon. Indian philosophy is regarded all over. It was through the this Swamiji and a host of other spiritual personalities conquered the west and set standards. It is through this spirituality that industry was born and rejuvenated in the country by the likes of Jamshedji .N. Tata, Seth Hukumchand, Acharya Prafulla Chandra Roy, J.R.D.Tata, G.D. Birla and currently by N.R. Naraya Murthy. Unless our moral values and ethical codes are observed all reportings, disclosures and transparency will have no value. The sensex will be exposed to the vagaries of some unknown intruders who will pull down all efforts of entrepreneurs who will suffer for no fault of theirs. So beyond the 52 clauses of the listing agreement there is morality and ethics which have to be followed and stand above all and need compliance equally with the set out clauses.