DC 3/2/09

It is not really surprising that 1,317 companies listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have not filed their latest corporate governance reports. According to a reply given in the Lok Sabha in October, there were 4,837 companies listed on the BSE. This means that nearly 60 per cent of the companies have not submitted their corporate governance reports. These companies know they can get away, so why should they bother? At the most, as the NSE has done, trading in these stocks is suspended. Who gets hurt? Not the promoter, but the investor, since he has no exit route. It is very clear that the promoter is almost always protected against the investor unless he is a lightweight without any political clout. The BSE, according to reports, has not taken any action at all till date against these 1,317 companies. The filing of corporate governance reports comes under Clause 49 of the listing agreement. The provisions for imposing a penalty for breach of the listing agreement is very clear — a fine of Rs 25 crores and imprisonment up to 10 years.

The listing agreement is the basic document, the basis on which the company gets listed on the exchanges. Its sanctity is violated if the listing agreement is not adhered to. On the BSE there have been over the years 2,800 companies in “Z” Category (companies that have not complied with the listing agreements). In addition, there are over 300 companies in the “unknown” category against whom no action has been taken. Yet everybody, including Sebi, is quiet on this. There is so much focus on Clause 49 of the listing agreement. It is a good thing, but what about all the other provisions of the listing agreement?

There cannot be anything more serious than being unable to trace companies in this day and age. Imagine the thousands and thousands of investors who have been left impoverished to the extent of the shares he or she owned. There are innumerable senior citizens suffering in this category.

In The Wealth of Nations, Mr Adam Smith has said every business transaction is a moral challenge to see that both parties come out in a fair manner. Today, we have regulators to play referee, but they seem to turn a blind eye most times. Ask the investors.