It's time for disclosures & exposures

Finally, a decade of reforms is set to change the way India Inc operates, how it runs the business and treats its shareholders, consumers, lenders and creditors.
Very soon corporates may have to make more disclosures in their financial statements and, more importantly, chief executives and chief financial officers could be asked certify the accounts of their companies; auditors may have to act with greater responsibility and care; companies will need to overhaul their corporate governance practices.
To deter market malpractice, markets regulator Sebi has been empowered with severe penal powers. Legislative changes to the Companies Act and the new Competition Law are set to redefine it all. Growing large is no longer an issue, but abuse of size to throttle competition could land a company in trouble. Sickness will continue to be a problem, but a proposed new mechanism will enable companies to restructure before the problem reaches the ‘point of no return’.
The amendment to Companies Act, dealing with sickness, allows for easier and quicker exits and liquidation of companies. As against up to 25 years taken currently to finalise a scheme for a sick unit, the amended legislation — which will replace the Sick Industrial Companies (Special Provisions) Act — will require the National Company Law Tribunal to finalise proposal within three years of referral.
With the country opening its doors to globalisation, the definition of competition has taken a new turn. Scale has become imperative to survive as much as the need to be nimble footed. The New Competition Law will allow companies to attain global size and become cost competitive. But they’d better not break the rules of fair competition. The consumer will not be allowed to be taken for a ride — the proposed competition commission will see to that.
On improving corporate governance practices, the Naresh Chandra Committee has already made its recommendations. the report seeks a greater role for independent directors and, significantly, wants majority of the directors on board to be independents. The government is planning to increase deterrence for violation of the Companies Act. Hence, lawyer Shardul Shroff’s committee has been asked to prepare a report on rationalising the penalties and fines for offences committed under the Act. The idea is that penalties should be in relation to the size/ gravity of the offence.
That apart, delinquency came under scrutiny during the year as rarely before. In ‘01, the department of company affairs (DCA) began inspection of 98 companies alleged to be involved in the stock market scam, that rocked the investor community earlier that year. Inspection reports for all but two companies have come in during ‘02. Further inspection has been launched in the case of 24 of these companies, and DCA decided to order 539 prosecutions against these companies and their directors on the basis of the inspection reports. Several of these prosecutions relate to non-compoundable offences, where officers/ directors of these companies could be sentenced to prison terms extending up to five year, if proven guilty.
Shankar Sharma’s First Global Stock Broking, First Global Finance and Vruddhi Confinvest, Dinesh Dalmia’s DSQ Software, Pentamedia Graphics, Nirmal Bang Securities, Adani Exports, Shailesh Shah Securities, Rathi Global Finance, Goldfish Computers, Nakshatra Software, Dolat Capital and Cyberspace are facing prosecution for serious offences. DCA has also moved the CLB to appoint its nominees on board of eight companies, to keep a watch on their activities.