Jail authorities from Goa seized nine mobile phones, including one from the cell Tarun Tejpal, during an inspection at the Sada sub-jail
Jail authorities from Goa seized nine mobile phones, including one from the cell of Tehelka founder and former editor Tarun Tejpal, during an inspection at the Sada sub-jail near Vasco town on Sunday.
Deputy Collector Gaurish Shankhwalkar told reporters that a surprise check was conducted in the Sada sub-jail. “We found nine mobile phones, including one in Tejpal’s custody,” he said.
However, jail authorities refused to state whether the mobile phone was carried by Tejpal. They also refused to disclose anything about whom Tejpal shares his judicial lock-up cell.
Shankhwalkar said that a detailed probe into the incident which has been initiated, would reveal the truth.
Tejpal who is accused of raping his junior colleague has been lodged in the Sada sub-jail. His bail petition is scheduled to be heard by the Goa bench of the Bombay High Court on 4th March.
RBI approved IDFC’s resolution to decrease foreign investment limit to 52.50% from 54%, the maximum allowed for FIIs
The Reserve Bank of India (RBI) approved a special resolution passed by shareholders of IDFC Ltd, to reduce investment limit to 52.5% from 54% for foreign institutional investors (FIIs). Since this is the maximum allowed by RBI, FII cannot purchase further shares of IDFC.
As on 31st December 2013, FII shareholding in IDFC was 52.31% which now crossed overall limit of 52.50% of its paid-up capital.
IDFC board of directors and shareholders has passed special resolution agreeing for decreasing the limit from 54% to 52.50% for the purchase of its equity shares and convertible debentures by FIIs.
IDFC closed Monday marginally down at Rs94.15 on the BSE, while the 30-share benchmark Sensex ended the day marginally up at 20,811.
United Bank’s CMD opted for VRS as the lender reported 194% jump in its NPAs for the December quarter. This also brings forward the opaque procedures and appointments of statutory auditors and independent directors followed by India Inc
As if, the unprecedented rise of 194% in the non-performing assets (NPAs) of United Bank of India (UBI) during the third quarter was not bizarre, there came a news about Archana Bhargava, its chairman and managing director (CMD), opting for a voluntary retirement citing health issues. This 194% rise in NPAs certainly calls for an urgent review of the system of nomination of directors for the public sector banks (PSBs) and elections of independent directors for private banks as well as appointment of their central statutory auditors. Both these are subject to prior nod from Reserve Bank of India (RBI).
Taking the UBI case first – in the pre-computerisation era all monitoring of advances was carried out manually. It was only in the recent past, following computerization came specific systems like Finacle from Infosys, others with their own names. All of them have been implemented across the entire Indian banking system and have been successful too after having overcome the initial glitches. The UBI management now trying to pass on the blame to the Finacle system tantamounts to the Hindi adage – “Nanch ne jaane angan teda.” It is also reported that this ‘phenomenon’, if at all can be considered to be one, lasted over two long years, ostensibly went ‘unnoticed so long!
There is undoubtedly gross negligence at all levels of the bank, right from the disbursing to the controlling authorities going all the way to the board level and this includes the CMD and executive director (ED) too. Their stand that they relied entirely on the system is patently untenable. They just threw caution to the winds. It is impossible that there are no bad loans and no chronic defaulters. They must have been kept under wraps taking shelter from the hiccup. Someone or the other must certainly have been in the knowhow and there is a conspiracy of silence. A fault in a branch or two can be explained, but certainly not at pan India level when it runs into thousands of crores! The fault lies essentially with the monitoring departments at top level like information technology (IT), systems, advances and the audit committee.
The news report on 20 February 2014 quotes the executive directors and top management of UBI saying that, “(they) are confident of upgrading and reducing the NPAs by at least Rs2,000 crore in the March quarter.” A tall order to achieve in just one quarter, one must say. As of December 2013, the Bank’s NPA stood at Rs8,545 crore with fresh slippage of Rs3,172 crore during the third quarter, a massive jump from Rs2,902 at the end of December 2012!
The benchmarks laid down by the Ministry of Finance and the banking regulator, need to be revisited urgently. The practices in vogue are extremely flawed. There are enough knowledgeable, experienced and qualified professionals around, who should be nominated to the bank boards and the boards should not be packed with dumb cronies without any banking exposure whatsoever. The same applies to the appointments of statutory auditors. In both cases, the powers to be only seek ‘Yes men/women’, who toe the official line and not raise ‘inconvenient’ questions.
As an RBI empanelled statutory auditor of long standing of state-run, private, foreign and co-operative banks, my experiences are not very pleasant to put it mildly. Sitting across the directors at accounts meetings, I noticed that the CMD alone invariably does bulk of the talking and the others merely nod their heads. There are no inputs, intellectual or otherwise, because their knowledge or exposure to commercial banking precepts and practices is almost nil. This applies in equal measure to the appointments of statutory auditors. There is no point in empanelling firms of chartered accountants essentially practicing full time on matters relating to income/ sales tax, value added tax (VAT) or management consultancy, who cannot do full justice to audits of banks that fall in an entirely different slot of specialisation.
Among many suggestions made in the ‘Report on Black Money’ by a Committee headed by the chairman of Central Board of Direct Taxes (CBDT) is to set up a regulator to empanel statutory auditors for corporate India. This is long overdue solution to the gross financial irregularities resulting in massive corporate frauds of the likes of GTB, Satyam and now Adidas-Reebok. The new Companies Act contains provisions to set up a National Financial Reporting Authority as an independent regulator for audit and accounts to monitor them as well. It is indeed a welcome step so long as it is not packed with retired government babus or their kin. At best it should be a multi-disciplinary setup with representations of the Comptroller and Auditor General (CAG), RBI, Insurance Regulatory and Development Authority (IRDA), Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), Institute of Cost & Management Accountants (ICMA), Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industry (CII) and Bar Council who are all major stakeholders in the corporate world. I suggest that the same body also deal with the appointments of independent directors for all listed companies and commercial banks, both in the public and private sectors.
Good governance corporate practices norms mandate that the board of directors appoint statutory auditors and induct non-management directors. Both of them are expected to be truly independent and unconnected with companies, promoters and management to be completely free of conflicts of interests and insulated from the influences of the promoters or company management.
Among some of the most vital cogs in the wheel of good corporate governance are the offices of the statutory and internal auditors, chief financial officers (CFOs) and directors of finance and experienced accounting and audit professionals in their own right having audited entities across the board. They should not constitute any one chartered accountant just practicing taxation and/or corporate executives with non-bank-audit exposures.
According to a report from The Hindu Business Line (17 December 2012), “Investors value today’s audit, but as many say they do not always read audit opinions, especially if they are unmodified. They are unlikely to invest in a company with qualified audit report acknowledging that they cannot access the information to perform due diligence on their own. Looking forward they want robust assurances on the metrics moving the markets such as earnings before interest, taxes, depreciation, and amortization (EBITDA), operating revenue and assurance on corporate social responsibility (CSR) unless it adds value, in governance areas on directors’ remuneration. There is a strong desire for more open communication between investors and the audit profession.”
All stake holders have tremendous of expectations from auditors – both statutory as well as internal. The degree of care and diligence expected from both these functionaries has undergone sea change the world over. The stake holders, who are now much more than the majority shareholders, no longer expect the auditors to provide them clean bills of health to corporate managements as was done hitherto. This is more particularly true when more and more gross financial irregularities have been coming to limelight post audit. It began in the West with Lehman Brothers, Enron, Tyson and BCCI, in India we have, GTB and Satyam and now Adidas-Reebok. The result was the winding up of Arthur Anderson, one of the largest audit firms worldwide.
The incidents of gross corporate transgressions reported by Indian and overseas financial analysts indicate, among others, mismanagement in a domestic airline company, different set of audited numbers submitted to the authorities by a telecom company, the veracity of results of a listed reality company questioned, alleged irregularities in a footwear company resulting in criminal complaints. All this make it imperative to revisit the process of appointment and subsequent renewals of the auditors.
The other critical issue is - how long should the company managements alone are entitled to continue with the present practice of appointments of independent directors and auditors only by an in-house proposal moved by the board of directors? More particularly when both the directors as well as auditors being embolden to their appointers – the company Boards and managements and the appointees forfeiting whatever is left of the modicum of independence.
Also there is the concern of companies paying independent directors hefty sitting fees for Board and Committee meetings. Once upon a time it was pegged at Rs250 per meeting in the Companies Act, 1956. Today they are also paid generous commissions as a percentage of the net profits. This seriously compromises their independence by injecting blatant conflicts of financial interests and this has to be strict no-no in terms of good corporate governance.
According to a PTI report, Reliance Industries Ltd (RIL) proposed to raise during the 6 June 2013 AGM, the commission to non-executive directors to Rs5 crore from Rs21 lakh, annually besides sitting fees for attending board meetings. The seven independent directors of RIL include two eminent lawyers, former chairman of NTPC, ex-bureaucrat, former IIT Kanpur director, eminent scientist and former dean of Kellogg School of Management. Executive directors include four members of the family and one professional. The company’s reasoning is “The compensation payable to the Executive Directors should therefore commensurate with their increased role and responsibilities.” There is a recent international study that family owned corporates pay more to their directors.
An independent regulator or body or panel maintaining an exhaustive data bank of eminent personalities and auditors needs to be set up that can bring about more transparent appointments of independent directors and auditors more particularly for widely held companies with high public stakes. This Appointment Panel ought to be put in place in consultation with regulators like Securities and Exchange Board of India (SEBI), IRDA, Telecom Regulatory Authority of India (TRAI), RBI, ICAI and ICSI. Today CAG and RBI maintain annually updated listings of audit firms with authentic data. Similar listing of eminent qualified and experienced personalities needs to be created for selecting independent directors. It can be culled from retired auditors, directors, professionals and corporate executives. The panel can propose at least three names to enable the company to select.
This idea of truly outside oversight in the monitoring of company affairs has brought about the concept of independent directors, who are eminent personalities and/or professionals to bring in vital inputs and advice on the Boards of companies that generally constitute promoters’ or managements’ appointees as other members of the board of directors. Independent directors are considered critical pillars of corporate governance as effective tools of being a part of an oversight body to protect the interest of stakeholders like investors at large more particularly minority interests, vendors, suppliers, employees, lenders and society at large.
Being external and unbiased, independent directors can bring about entirely different perspectives and provide fillip with their qualifications and expertise striking a right balance between growth and governance. As effective contributors they bring in wider knowledge, experience, insight, skills and industry expertise for the company to profit when they voice genuine concerns, put out searching questions. They are also expected to have constant interaction with executive management, review of company and industry publications particularly from competitors and not merely accept the data submitted in the Board folders containing discussion papers but to spend quality time, not merely putting in token presence or act as ornamental artefacts in the Board Room to collect fat sitting fees and commissions.
The Parliamentary Committee on the Companies Bill has suggestions on issues of liabilities of independent and non-executive directors and when they can be responsible when they do not carry out their duties diligently, a very wide term, more particularly, when the transgressions are committed with their knowledge and consent or there are instances of gross or wilful negligence and fraud. There is also a need to expand protection to extend protection to them and restrict their arrest only on authorization by a judge and on his being given an opportunity of being heard.
An AT Kearney study in 2007, reported that only 39% listed Indian companies followed any formal process of selecting members to their Boards and that a whopping 90% of the so-called independent directors were picked out of the old boys networks of company chairmen or CEOs. There is a raging controversy over the appointment of a close relative on the Board of Indian Hotels violates the unchartered “independence” norms. Taking advantage of grey areas this seeks to question the concerns of conflicts of interests in public appointments to protect the stake holders.
(Nagesh Kini is a Mumbai-based chartered accountant turned activist.)