Regulations
SEBI says whistleblower mechanism in new Code to check corporate scams

While the new Companies Act, 2013 require certain classes of companies to establish a vigil mechanism, SEBI has now decided to incorporate a provision in its new Corporate Governance Code as well for whistle blower protection

 

Market regulator Securities and Exchange Board of India (SEBI) has decided to make it mandatory for listed companies to have a whistle-blower mechanism for their employees and directors. This step has been taken by the market regulator amid growing number of scams related to corrupt practices in corporate India.

 

According to SEBI, the mechanism would also need to have necessary safeguards to protect whistle-blowers from victimisation, while checks would also be required against any misuse of this facility aimed at encouraging directors and employees to report genuine concerns and any wrongdoings at their company.

 

While the new Companies Act, 2013 also provides for certain classes of companies being required to establish a vigil mechanism for their directors and employees, SEBI has now decided to incorporate a provision in this regard in its new Corporate Governance Code for listed firms.

 

The Code has been approved by the SEBI board and would be soon notified by the regulator.

 

According to an internal document prepared by SEBI on this issue, a proposal to make whistle-blower mechanism compulsory for listed companies has been favoured by a vast majority.

 

The proposal received 19 comments in its favour and just one against it, SEBI said.

 

The whistle-blower mechanism, popular in many developed nations, provides an opportunity for employees to report any misdoings within their company.

 

SEBI's Primary Markets Advisory Committee (PMAC) in fact recommended that the whistle blower mechanism should be made available to all employees, as well as other stakeholders of the company. It also suggested that the whistle blower policy of the company should be widely publicised to the target segments.

 

SEBI, however, concluded that the mechanism would ideally be kept open only for internal stakeholders such as employees and directors.

 

"Other external stakeholders are not totally within the powers of the company and have other avenues for redressal of their concerns. Hence, the proposal may be aligned with the Companies Act, 2013 and whistle blowing mechanism may be restricted to directors and employees only," SEBI said.

 

At present, a listed company may establish a mechanism for employees to report to the management, their concerns about unethical behaviour, actual or suspected fraud or violation of the company's code of conduct or ethics policy.

 

However, it is currently not mandatory for companies to have a whistle blower mechanism.

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CCEA clears GlaxoSmithKline's Rs6,400 crore FDI proposal

After the purchase, promoter group holding in GlaxoSmithKline Pharmaceuticals will go up to 75% from the current 50.67% stake

 

The Indian government on Thursday cleared a foreign direct investment (FDI) proposal worth Rs6,400 crore of healthcare company GlaxoSmithKline to acquire additional 24.33% stake in its India unit.

 

The Cabinet Committee on Economic Affairs (CCEA) approved the proposal of Singapore-based GlaxoSmithKline Pte Ltd for acquisition of 24.33% shares in its existing Indian subsidiary GlaxoSmithKline Pharmaceuticals.

 

The said acquisition "would be done by way of a voluntary open offer under SEBI (SAST Regulations) in the pharmaceutical sector," an official statement said.

 

"The approval would result in foreign investment of approximately Rs6,390 crore in the country," the statement added.

 

GlaxoSmithKline Pharmaceuticals is already majority owned and controlled by the GSK Group.

 

After the purchase, holding of the promoter group firm in the Indian subsidiary will go up to 75% from the current level of 50.67%.

 

GSK Pharma makes, distributes and trades in a variety of drugs. Its portfolio include prescription medicines and vaccines across areas such as anti-infectives, dermatology, and gynaecology.

 

The company employs more than 5,000 people and generated more than Rs2,600 crore turnover during the financial year ended 31 December 2012.

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SAT upholds SEBI's Rs10 lakh fine on Keynote Corporate Services

SAT noted that while the loss caused to investors of Edserv Softsystems cannot be quantified but it was certain that investors, as a whole, incurred huge losses as a result of IPO due to the act of Keynote

 

The Securities Appellate Tribunal has upheld the Rs10 lakh penalty levied by Securities and Exchange Board of India (SEBI) on Keynote Corporate Services in a matter related to regulatory violations in initial public offering (IPO) of Edserv Softsystems in 2009.

 

SEBI had found that Keynote as a book running lead manager to the IPO of Edserv Softsystems, had failed to exercise due diligence by not including details of inter-corporate deposits (ICDs) availed by the company in the prospectus, thereby violating prescribed norms.

 

Accordingly, in January 2012 SEBI slapped a penalty of Rs10 lakh on Keynote, following which, the entity approached SAT challenging the regulator's ruling.

 

While upholding the penalty on Keynote, the SAT, in an order on 19th February, said that the responsibility of the entity 'was major, since he plays the coordinating role in bringing out IPO and is conceived to be the one who certifies veracity and adequacy of all disclosures...".

 

It also "had the responsibility of bringing out all relevant facts and to ensure that no material information/ fact is withheld ....And has authority to call for all relevant information from company seeking IPO and is expected to carry out due diligence to bring our truth and adequacy of information in IPO at all stages," SAT said.

 

"The penalty is, therefore, upheld and appeal against the impugned order is dismissed," it added.

 

Keynote had failed to mention in the prospectus of Edserv Softsystems that the company had taken ICDs of Rs4 crore as result of which the investors could not make "informed decision" for investing in the IPO.

 

SAT noted that while the loss caused to investors "cannot be quantified" but it was "certain that investors, as a whole, incurred huge losses as a result of IPO".

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