Sebi to turn the heat on au­dit com­mit­tees

Reg­u­la­tor’s board meet­ing on Sept 18; to take stock of ac­tion against 331 sus­pected shell firms

Business Standard - - FRONT PAGE - SHRIMI CHOUD­HARY

Cap­i­tal mar­kets reg­u­la­tor the Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) is likely to tighten norms per­tain­ing to con­sti­tu­tion and func­tion­ing of the au­dit com­mit­tees for listed com­pa­nies. These com­mit­tees act as in­de­pen­dent over­sight bod­ies re­spon­si­ble for trans­parency and ac­cu­racy in func­tion­ing of com­pany and the board.

Ac­cord­ing to sources, the mar­kets reg­u­la­tor plans to look at how In­dia Inc is ap­point­ing mem­bers on the au­dit com­mit­tee, their qual­i­fi­ca­tions and whether they are dis­charg­ing their du­ties, with­out un­due in­flu­ence of the pro­mot­ers.

‘Pro­ceed­ings of au­dit com­mit­tee and re­con­sti­tu­tion of the same’ is among the top agenda of the Sebi board meet­ing sched­uled on Septem­ber 18, said sources. Other agenda items in­clude the sur­veil­lance ac­tion re­port on 331 sus­pected shell com­pa­nies, changes to in­fra­struc­ture in­vest­ment trust (In­vIT) norms and ap­point­ment of a chief economist at Sebi.

This move comes in the wake of re­cent in­stances that put the spot­light on the role of au­dit com­mit­tee mem­bers. Sebi had re­ceived com­plaints per­tain­ing to the role of in­de­pen­dent di­rec­tors on the boards of listed com­pa­nies. The com­plaints were about con­flict of in­ter­est and wrong dec­la­ra­tions made in the au­dit com­mit­tee re­port.

Ac­cord­ing to the Com­pa­nies Act, two-thirds of the au­dit com­mit­tee of listed com­pa­nies have to be made up of in­de­pen­dent di­rec­tors. An­other third com­prises non-ex­ec­u­tive di­rec­tors.

“The rules are struc­tured to pro­vide strong over­sight over a com­pany’s fi­nan­cial state­ment, re­lated-party trans­ac­tions, and in­ter-cor­po­rate loans. How­ever, the view within Sebi is that au­dit com­mit­tees in most com­pa­nies are rub­ber stamps. They are not ful­fill­ing the en­trusted role and re­spon­si­bil­i­ties,” said a per­son with knowl­edge of the de­vel­op­ment.

The Sebi board is likely to de­lib­er­ate ways to add more mus­cle to the au­dit com­mit­tee, the per­son added.

Ex­perts said Sebi should con­sider get­ting pro­fes­sion­als on au­dit com­mit­tees.

“The pro­vi­sions re­lated to role, re­spon­si­bil­ity and func­tion­ing of the au­dit com­mit­tee is more of self-gov­er­nance. It is time that a pro­vi­sion is made to ap­point pro­fes­sion­als who would be un­der obli­ga­tion to re­port di­rectly to the reg­u­la­tors rather than to the board,” said Rishabh Mas­taram, founder, RGM Le­gal. Sources said Sebi might tighten au­dit com­mit­tee com­pli­ance norms for big-ticket trans­ac­tions. The reg­u­la­tor is par­tic­u­larly con­cerned over whether com­pa­nies are fol­low­ing rules laid down for ac­count­abil­ity and dis­clo­sure of in­ter- cor­po­rate loans. The man­date of the au­dit com­mit­tee in­cludes scru­tiny of such loans and in­vest­ments.

Be­sides, Sebi may also re­view the process fol­lowed in the re­con­sti­tu­tion of au­dit com­mit­tees. Ex­perts be­lieves that the re­con­sti­tu­tion of the com­mit­tee should have share­hold­ers' ap­proval. "It is im­por­tant to en­sure that ap­point­ment of new mem­ber or re­con­sti­tu­tion should not be done by pass­ing a sim­ple board res­o­lu­tion. Be­sides, the di­rec­tors have to be fair and in­de­pen­dent and should be ca­pa­ble of de­ci­sions with­out be­ing in­flu­enced by dom­i­nant share­hold­ers. The in­de­pen­dence should be both in let­ter and spirit and not just on pa­per," said proxy ad­vi­sory firm InGovern MD Shri­ram Subra­ma­nian. Sebi is also likely to ap­prise the board mem­bers on the re­cent ac­tion taken against 331 “sus­pected shell com­pa­nies”. The reg­u­la­tor is also likely to ease the In­vIT frame­work. In­vIT is­suances dried up af­ter just two is­suances.

Also, Sebi, for the first time, is likely to cre­ate the po­si­tion of a chief economist. The reg­u­la­tor is also likely to mull ways to en­sure timely com­ple­tion of pend­ing in­ves­ti­ga­tions.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.