7 Flaws That Have Killed the Kotak Committee Report
The Uday Kotak committee’s report has been decisively killed, even before it was released. Dissent notes from the ministry for corporate affairs (MCA) and the ministry of finance (MoF) had already torpedoed it; but these do not even find a mention in Uday Kotak’s preface. What is extraordinary, though, is that the government dissenters come across as more sensible and flexible, while the committee, headed by a dynamic, private sector banker, has produced a document that would only add red tape and regimentation to the management of listed companies. 
 
This committee was set up just after the Tatas and Infosys, who are held up as paragons of good governance, made news for the most unsavoury goings-on, such as the unceremonious sacking of the group chairman, ejecting independent directors through brute majority, shady corporate dealings and allegations of exit pay as ‘hush money’. The committee has hardly bothered to address any of these. Allow me to list seven major things that are wrong with the report. 
 
1. Uday Kotak signed the preface note on 5th October. The MCA and MoF’s dissent notes, sent on 3rd October, had ended by saying, ‘it may be difficult to change the recommendations at this stage’; so their letters should be taken on record and shared with SEBI (Securities and Exchange Board of India) either separately or as part of the report. Amardeep S Bhatia, joint secretary and member of the Kotak committee, has signed MCA’s dissent, while that of the MoF is signed by Deepak Ranjan (deputy director, primary markets), although Praveen Garg, joint secretary, was a committee member.
 
Considering that chapter XI-C of the report is about collaboration between SEBI and other agencies, it has you wondering whether these gentlemen even attended the meetings or paid attention. MCA has objected to half the key recommendations and raised fair questions about jurisdiction; but why wasn’t it done during the committee’s deliberations? Surely, the MCA and MoF joint secretaries were not overruled? Representatives of the Institute of Chartered Accountants (ICAI) and Institute of Company Secretaries (ICSI), who were on the committee, were almost guaranteed to side with the MCA which regulates them. Two marquee lawyers were also members. Didn’t they point out that a spirit of collaboration would require some recommendations to be implemented by amending the Companies Act, 2013, rather than tinkering with the listing agreement? My reading, based on past experience, is that all hell broke loose after someone in the government saw a draft report. That would explain railway minister Piyush Goyal’s outburst, a day after the report was released. MCA and MoF were probably ordered to rush their dissent notes before the report was released. The smart thing for Uday Kotak to do would have been to hold another meeting and try for some common ground or unanimity and retain its credibility. NR Narayana Murthy did exactly that when big honchos of corporate India, led by Ratan Tata (who wrote to Tarun Das of Confederation of Indian Industry), objected to some of the recommendations of the corporate governance committee that he headed and of which I was a member.
 
2. Addressing CII in May 2017, SEBI chairman, Ajay Tyagi, had described corporate boards as closed clubs where directors were appointed “at the mercy of promoters,” with no prescribed qualifications or procedures. The Kotak committee tried to address this issue by recommendations such as minimum remuneration, educational qualifications and skills and evaluation of directors, etc, which were largely shot down by the two powerful dissenters. The need for such rules about qualification and expertise applies more to listed public sector undertakings (PSUs). The private sector has many examples of entrepreneurs with no relevant qualifications going on to create great wealth. But, whatever its claims about better governance or administration, this government was certainly not going to allow a good governance committee to stop it from installing political appointees, like a Shazia Iilmi or a Sambit Partra, on to the boards of important PSUs. As an aside, this is probably the first corporate governance committee with representation for PSUs (Madhukar Gupta, additional secretary department of public enterprises, and Dr UD Choubey, director general standing conference of public enterprises, were committee members), but that made no difference. The dissent over minimum attendance at board meetings and the practice of ‘alternate’ directors may also be aimed at allowing senior bureaucrats to continue enjoying the perks of PSU directorships, while someone else take the responsibility of attending meetings.
 
3. The Kotak committee recommends a slew of mandatory practices such as a minimum of six directors per listed company, holding five board and audit meetings per year, 50% of the board comprising independent directors (up from 33% now); two women directors, a minimum remuneration of Rs5 lakh for directors, capping independent directorship at seven per person, etc. MCA has correctly said that many of these recommendations impose a needless cost on companies and some are outside SEBI’s turf. The pertinent questions to ask are: Would any of these new rules, if accepted, prevent a Ratan Tata from throwing out a Cyrus Mistry or a Nusli Wadia in future? Or would they force Infosys to make its internal investigation report public? If not, isn’t this needless tinkering?
 
4. One recommendation is to make it mandatory to disclose the resignation of independent directors and the reasons. But MCA has opposed this by asking what will be the consequence of a company claiming there was no material reason for a director’s resignation when, in fact, there were? Frankly, neither the recommendation nor the objection protects an independent director who speaks out against bad management. That was Nusli Wadia’s question and it remains unanswered. 
 
5. The committee recommends separation of the post of chairman and managing director (CMD); but it is unclear to me how this would improve governance. Instead, it would have been more pertinent if the committee had said there cannot be two persons heading a company in a non-executive capacity. SEBI allowed Ravi Narain to be appointed as non-executive vice-chairman of the National Stock Exchange, which was directly under its regulatory jurisdiction, despite the questions raised by its legal department. He was on 20-odd committees and virtually enjoyed executive power. Infosys appointed Ravi Venkatesan as joint-chairman to cut R Sheshasayee down to size and appease NR Narayana Murthy. Isn’t this is a bigger problem than the 500-odd companies headed by a CMD?
 
6. Chapter XI-B of the report recommends creation of a separate department to focus on financial statements and filings to detect reporting, disclosure and audit failures and to create a robust data processing framework which can form the basis of further investigation, detection of violations involving misleading financial statements and disclosures. Apparently, none of the SEBI officials told the committee that former chairman CB Bhave had killed EDIFAR (Electronic Data Information Filing and Retrieval) in 2010. EDIFAR was a statutory reporting system, modelled on the SEC’s (Securities and Exchange Commission) EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database in the US. It is the first step to the analysis and data processing recommended by the Kotak committee. But, hey, who will bring up dodgy decisions of ex-SEBI chiefs? 
 
7. Finally, there were specific recommendations about directors’ risk cover, reclassification of promoters as ordinary investors, concept of holding the auditor ‘responsible’ for audit of unlisted subsidiaries, leniency mechanism (which allows the regulator to let off the small fish in exchange of testimony against big violators of the law), which may have had some merit, but they have either been opposed, or make any discussion futile when so much of the core report is likely to be junked. After all, there is hardly any chance that SEBI chairman Mr Tyagi is going to be able to push through any good governance recommendations through his own board which doesn’t have 50% independent directors to support what may be good for the investing public.
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    COMMENTS

    Mahesh Bhatt

    2 years ago

    View Values for Wealth at Kirticorp n youtube user kirtidabhatt n call for Partnership Mahesh Bhatt

    mathivanan palraj

    2 years ago

    Good governance comes from good human beings.

    B. Yerram Raju

    2 years ago

    The reasons for the Committee to be set up in the first place are suspect and so are the outcomes. The Report has not made any references to the PJ Nayak Committee on Corporate Governance in banks and refrained from observations in regard to the governance in banks and FIs, and public sector undertakings. 'In-dependent Directors' appointments have always been the Achilles Heal of all committees on corporate governance and no company would like them; more so, the government sponsored companies. After accountability has been fixed in the Companies Act latest version, those who want to poke their nose into the affairs are sneaking into the boards as special invitees!! This new animal is more dangerous. If the goings of the company need investor protection and conformance to the aims and objects of the company, why should anybody be afraid of 'Independent Directors'? On the other hand, I am of the opinion that the more independence of independent directors should deserve utmost consideration of the Boards. Good governance comes from good behaviour and good discipline. When the latter two are a casualty we cannot expect internal scrutiny. I wish the Committee has at least recommended a 250-300 word write up on what the independent Director or for that matter what the other Directors would like to do during their tenure to serve as criteria for self-evaluation of their performance on the Board, could have altered their complexion. The author of the article smeared the Report deservedly. But more positive recommendations from her to correct the maladies afflicting the present Boards would have added weight to the article.

    V Ramesh

    2 years ago

    I think the question that has not been raised is why this committee was appointed in the first place? What instances of poor corporate governance did SEBI identify, and ask the committee to address?It has become fashionable to appoint committees periodically. A committee, particularly a high powered one like this, is not going to just say every thing is hunky dory. They are duty bound to come up with a list of changes.

    Chaman Kumat

    2 years ago

    Too many cooks spoil the broth... the same may not happen with the Independent Directors too

    DSK Defaults: DS Kulkarni continues to promise repayment without revealing source of ‘funding’; SEBI and exchanges keep mum

    Pune-based DS Kulkarni group that had defaulted on repayments to thousands of investors is still trying to buy more time. In fact, Deepak S Kulkarni, the group promoter, continue to promise several things to investors. This includes promise for repayment by March 2018 and also threat to commit suicide if investors file a first information report (FIR) against him.

     

    However, neither Mr Kulkarni nor DS Kulkarni Developers Ltd, the group's listed unit, is ready to reveal source of this funding. In fact, DS Kulkarni Developers is mandated to update stock exchanges about every price sensitive information. However, there is no update from the company on BSE or NSE websites. Has DSK managed to find a source from where to pay depositors? That would be a significant development and it is mandatory for a listed company to inform shareholders of any significant corporate development. If DSK does not have the money to pay, it is simply misleading its shareholders. One would expect the market regulator Securities and Exchange Board of India (SEBI) and stock exchanges to question DSK about these statements but they are silent.

     

    The company’s 2016 annual report shows no default to banks (its bankers include State Bank of India, Syndicate Bank, Bank of Maharashtra, Union Bank of India, IDBI Bank, ICICI Bank and Vijaya Bank) and it has availed of construction finance from a set of housing finance companies against the security of many ongoing projects. There are no defaults to debenture-holders either. This suggests that DSKDL is careful to ensure no default to secured creditors while it has begun to default afterwards. This is exactly where the new rule of SEBI—about reporting defaults to the stock exchanges—will help protect investors by providing up-to-date information on the finances of a company.

     

    Media reports describe DSK as a Rs1,500-crore group with a land bank of thousands of acres.

     

    The glowing entrepreneurial story of DSK group started faltering sometime in 2016, when the seemingly impossible happened and interest cheques of the DSK group companies began to bounce. For the past year, investors have been gathering at DSK’s corporate office in Pune to demand their money back.

     

    In general, DS Kulkarni’s office is always open to depositors. Everybody gets to meet him and his wife; they openly admit to financial troubles and urge investors to give them time to sell assets and raise money to make payments. Investors are also told that if they file a complaint, the chances of getting money back are low.

     

    In the below videos, Mr Kulkarni can be seen promising many things to investors at the Economic Offenses Wing of Pune Police.

     

     

     

     

     

     

     

     

     

     

     

     

     

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    COMMENTS

    Ambareesh Baliga

    2 years ago

    Unlike most of the other businesses, Real Estate has traditionally been operated purely on "Trust" and continues to be - to a large extent despite "ReRa". This includes those who lend to a developer, Vendors and Contractors who work on months of credit and more importantly - Buyers of "under construction" property which forms a bulk of sales. So basically they are able to get all this based on their brand and past reputation. Today DSK has lost all that - so other than 'promises' which could buy some more time (especially since he has not absconded) - there doesn't seem many options. Longer the wait, bleaker the solution. And vultures waiting on the side will never bother about the smaller creditors. And more importantly how much hold does DSK himself have now within the organization he had built from scratch? (so do his promises???)

    Regulation of Retirement Homes under Consideration
    Hardeep Singh Puri, minister of state for housing and urban development, has agreed to examine Moneylife Foundation’s study on retirement homes with a view to formulating appropriate regulations and guidelines to protect middle-class and affluent elders who move to such homes in the expectation of hassle-free silver years. I met Mr Puri and presented a copy of the study to him on 
     
    29th September at New Delhi and briefed him on the key findings as well as the need for formal regulations and disclosure norms to protect those who chose to move into retirement homes/townships which are a booming new sector that meets the changing requirements of society. 
     
    The regulations should include prescribing minimum standards of infrastructure, service, contracts and protection (in the form of supervision, swift grievance redress and empowerment of residents) in line with what has been done by developed nations such as Canada, Singapore, New Zealand, Australia and others. The minister also discussed how financial products such as reverse mortgage could be encouraged among this set of residents to give them access to cash if they begin to run out of savings. 
     
    Mr Puri readily agreed to have his officials consider how best to ensure the orderly development of such townships for the benefit of all stakeholders and enhance confidence in this sector. Simultaneously, at the initiative of Praveen Singh Pardeshi, additional chief secretary to the chief minister (CM) of Maharashtra, a working group is being set up to examine what needs to be done to encourage the growth of retirement homes, which cater to a growing market segment, and to put in place regulations that will protect their residents. The working group, which will include all stakeholders, is being led by Dinesh Waghmare, secretary, department of social justice & special assistance and includes BN Makhija (ex-secretary, GoI), Priya Khan (OSD, CM’s office) and representatives from ministry of urban development and department of social justice & special assistance. Moneylife Foundation is also a part of the group. Maharashtra wants to prescribe standards, ensure grievance redress, while avoiding needless red-tape and inspector raj, as also to ensure an independent rating of retirement homes to guide investors.
     
    The key findings of Moneylife Foundation’s study were as follows. Retirement homes are a new market segment with huge potential because a growing number of affluent middle-class Indians are looking to spend their retirement in a secure environment, with like-minded people of similar interests and without the burden of running a home. However, the sector needs effective regulation to ensure security and grievance redress. The need for regulation was underlined by a court case in the Tamil Nadu High Court that highlighted the travails of the senior citizens living in a retirement home in Coimbatore.
     
    The study recommends that retirement homes must come under Central regulation, although housing is a state subject. The government must put in place regulations to ensure that every retirement home, and its management agency, is required to file details of its agreements, amenities, terms and conditions of service, licences, sanctions, and permissions; these should also be  uploaded on a statutory searchable website. The promoter/developer of a retirement home must sign an agreement 
     
    with the residents to ensure that services, like nutritious meals, 24x7 security, well-equipped medical centre, comprehensive insurance, record maintenance, employee screening and policy for transfer of the asset, are provided by them. 
     
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    COMMENTS

    Ganesh Johnson

    2 years ago

    Hi, this is very much needed. I would like to point out that Paranjape Schemes created their Athashri homes in Bavdhan. From a real life experience of a 70+ year old couple who purchased and moved into this retirement home, nothing is as advertised. The food is really bad and the breakfast is not served on time. The transportation is pathetic and this poor couple was forced to hitch rides and get their groceries from miles away and finally resort to cooking. The lady was afflicted with cancer and passed away recently, but while she was alive she was in no shape to tend to household duties. Exactly the reason why they moved to Athashri in the first place, but their experience was very bitter. So a regulated retirement environment is very welcome because Paranjape Schemes is now going to town with another large retirement home scheme further down the road which will be many more miles away from Pune city center, and i shudder to think how they will hold some retirees welcome once they move in.

    Ramesh I

    2 years ago

    Our politicians have left enough loopholes in the RERA legislation & rules to ensure that the Real Estate Developers (REDs) have enough leeway to swindle home-buyers. Hence, it's all the more important for the Govt to revisit the RERA & its rules to ensure that elderly people who invest most of their life's savings into a retirement home are not left high n dry, by unscrupulous REDs like DLF, Unitech, Indiabulls, who have vast political patronage (and investment of their illicit income too). But then, real estate remains the No 1 choice for 'investment' (read parking of illicit income) by politicians and corrupt officials, RERA is unlikely to be modified to favor home-buyers.

    REPLY

    Nirav

    In Reply to Ramesh I 2 years ago

    Banana Republic / Forced Marriage Federation called India , How can you expect , slave mass Indian population to get basic rights of food , shelter , security and dignified life ?? , you should be happy , that at least you able to type your opinion somewhere

    Leena Mehta

    2 years ago

    Trand of nuclear family started, So concept of Retirement home emerged. But very full proof regulation is needed. Elderly are completely depend on managment of Retirement home. They can exploit them.

    REPLY

    Nirav

    In Reply to Leena Mehta 2 years ago

    Banana Republic / Forced Marriage Federation called India , How can you expect , slave mass Indian population to get basic rights of food , shelter , security and dignified life ?? , you should be happy , that at least you able to type your opinion somewhere

    Ashok Maheshwari

    2 years ago

    There are two related issues-total apathy of both Central and state govts.,towards any relief to Seniors (10 crores plus) due to which Mushrooms 'Old age homes', Senior's homes get registered with Charity commissioner to enjoy 80G benefit. Some even insist that monthly charges-reciept will be issued as Donation. There are either no agreements or one sided agreements which empowers them to expel any member. The most worry some issue is that members can stay until they can manage their daily chores themselves failing which such members have to leave the premises. there are hardly any medical facilities, the quality of food served is not suitable for Seniors above 75 years as the management does not avail the services of an Dietician.
    Unless and until, Mody Govt. and state Govts. sincerely intrested to provide a care-free environment for Senior citizens, their plight will continue.
    This is from my personal experience as inspite of monthly payment of Rs.30,000/- for lodging and Boarding in a Exclusive Senior's home, no other facilities are provided and monthly charges are enhanced on the management 's whims and fancies. it's a one way traffic.

    REPLY

    Nirav

    In Reply to Ashok Maheshwari 2 years ago

    Failed Cities , Failed / Corrupt / Sick / Chaotic Society is part of Plan for Mass Enslavement , which is very well achieved , Slave , low skilled population consider 70 + as liability , India , Pakistan , BNG are Third world nations , Not even emerging , gone to dogs , India will be chaotics , most sick society with extreme disparity more horrible than Nigeria , Kenya , Mark my words

    Ashok Maheshwari

    In Reply to Nirav 2 years ago

    The Current Prime minister is making Fool of mass Indians by making all sorts of commitments so that india is going to be again "sona ki Chidiya' by 2022.
    He has totally neglected rather ignored 10 Crore 'Seniors' and by 2030, india will be a country of 35% of its population of aged and by 2050 will grow to 50% of country's present population.
    Pm and his FM have totally ignored thousands of petitions of Senior citizen's associations and millions of 'Seniors' and perhaps thrown in the waste basket.

    We are listening!

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