Unlisted firms: Sebi may get more powers

The government may soon vest the Securities and Exchange Board of India (Sebi) with powers to act against insider trading and forward dealing activities in unlisted units of publicly traded entity.

Specific sections of the companies Act may be amended to allow Sebi to enforce corporate governance norms on unlisted subsidiaries so that investors’ interest is protected, said Injeti Srinivas, secretary of ministry of corporate affairs(MCA). “We have a meeting with Sebi in the next few days and we will work on this issue. Even if it involves unlisted companies, MCA is open to vacate the required areas in the Act for Sebi as long as it serves the common goal of improving corporate governance standards,” Srinivas said on the sidelines of a corporate governance summit organised by CII on Saturday.

The Companies Act empowers MCA to take penal action against any unlisted company or its board members for a breach of insider trading or forward dealing norms. Sebi can take action only if the firm is traded publicly and its powers are specified under section 458 and section 28 of the companies Act.

Addressing the summit, Uday Kotak, who chaired the 25-member corporate governance panel of Sebi, said many listed companies have several unlisted subsidiaries. “In many cases, the businesses of the subsidiaries account for 70-90% of the consolidated business of the related listed company. The listed company comes under the domain of Sebi and the unlisted ones come under MCA,” said Kotak. “The money of the investor in the listed company moves across the entire consolidated group. The investor does not know what is happening with the money in the unlisted space below the listed company.”

The existing Sebi rules, which came into force from 15 May 2015, allow Sebi to take action against a connected person or a subsidiary of a listed entity for breaching insider trading norms. But Sebi rules are silent on unlisted subsidiaries. If such a subsidiary is an unlisted entity or the connected person belongs to an unlisted entity, the case falls under the Companies Act also, which results in ambiguities with regards to penal actions.

MUMBAI: