50% seats for independent directors
The Naresh Chandra Committee report on corporate audit and governance has recommended an increased role for independent directors by assigning them atleast 50 percent seats on the board of a public limited company with a paid-up capital of Rs.10 crore and above and a turnover of Rs.50 crore and above. It has also said nominees of financial institutions (FIs) cannot be counted as independent directors.
The Committee, also recommended tightening of the noose around auditors by asking them to make an array of disclosures, called upon chief excutive officers and chief financial officers of all listed companies to certify their companies' annual accounts, besides suggesting setting up of quality review boards for the Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India and the Institute of costs and works accounts of India, instead of a Public Oversight Board similar to the one in the United States.
Shri Chandra, said : "We have not supported rotation of auditors since it will cause major dislocations. When a new auditor firm is appointed, it takes time to understand the complexities of a business. Also, it has been observed that more mistakes tend to happen in the first two years, "The committee has, instead, mooted compulsory audit partner rotation every five years.
Drawing up a comprehensive list of disqualifications for auditing assignments, the committee feels the fees from one client (including its subsidiaries and affiliates) should not exceed 25 percent of the revenues of an audit firm. However, an audit firm with a revenue less than Rs.15 lakh and those which are less than five years old are exempt from this criterion.
The report has also detailed a list of non-audit services, which an audit firm is prohibited from providings to its audit clients. It includes accounting and book-keeping, internal audit, actuarial and valuation services, design of financial information systems, and broker, dealer or investment banking services.
Frauds office to lead market regulation
The Serious Frauds Office, to be set up by the government, is likely to assume the role of a lead regulator for the Indian capital markets. The Joint Parliamentary Committee (JPC) probing last year's stock market scam had also recommended that India needs a lead regulator and not a super-regulator as originally proposed.
According to senior government sources, the frauds office will co-ordinate with various regulators and lead investigation into financial offences of large magnitude from the front. It will comprise officials from regulatory bodies, including the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the income tax deptt., the deptt. of company affairs and the Central Bureau of Investigation (CBI).
Finance Minister, Shri Jaswant Singh had announced in July, 2002 the setting up of a Serious Frauds Office along the lines of the Serious Frauds Office in the UK Government Sources said the office in India would be a multi-disciplinary body and would be broadbased roping in tax, legal and forensic experts, besides those in the areas of information technology and intellectual property rights.
The office would be set up within the present legal frame-work. The deptt. of Company Affairs will, however, in due course examine if separate legislation is required for it.
Reforms must for 8% growth : PM
The Prime Minister, Shri Atal Behari Vajpayee on December 21, 2002 focused on four major, hitherto neglected, development issues while inaugurating the assembly of Chief Ministers gathered to formally adopt the Tenth Plan document. The four issues focus on Plan targets and fiscal discipline, comprise poor governance, barriers to internal trade, creating an investor-friendly climate and empowerment of the panchayats in terms of their financial and administrative capacity.
Shri Vajpayee signalled the government's resolve to accelerate and expand reforms. Inaugurating the 50th meeting of the National Development Council in Delhi, he said that fiscal consolidation, better targeting of subsidies, forging of public-private partnerships (PPP) for development of physical and social infrastructure and removal of bottle-necks in energy, transport and water infrastructure were some of the key initiatives that the government needs to take to ensure the 8% growth target for the 10th plan period is realised. To ensure fiscal consolidation at both the Centre and State levels India needs to enhance revenues, and address the problem of untargeted, runaway subsidies. VAT regime should be implemented in all states from April 01, 2003. This will open the door to enhance revenues for the state.
The finance ministry was also preparing a paper on reform of subsidies. As the existing subsidies did not fulfil the objectives of providing relief to the poor, a firm roadmap for applying correctives in a time-bound manner need to be put in place.
LS passes money laundering Bill
A major Bill to prevent money laundering and provide for confiscation of property received the Parliamentary approval with the Lok Sabha in November giving its nod to technical amendments suggested by the Rajya Sabha. The LS approved the Bill by a voice vote without debate on the amendments to the Prevention of Money Laundering Bill, which it had passed in December, 1999.
Policy for Petro Pipelines laid out
The government announced the policy for laying petroleum product pipelines in the country on a common carrier principle, thereby opening the sector for private players in December. The decision, aimed at boosting the pipeline sector, will increase the product transportation to 45 percent in the next two to three years from the current 32 percent.
The petroleum product pipeline policy guidelines entails usage of the existing product pipelines by the owners for their own products and the common carrier principle would apply to only excess capacity in these pipelines. However, all future product pipeline capacities built will have to be shared with the industry.
Addressing a news conference in New Delhi on December 05, 2002, the petroleum minister, Shri Ram Naik said, "the common carrier principle will not apply to (existing) dedicated pipelines. Only the excess capacity can be shared. Capacity of product pipelines constructed, hereafter, would be shared.
Companies and investors will have complete freedom in respect of the pipelines originating from refineries or meant for captive use of companies for which right of user (ROU) will be unconditional. The new pipelines would necessarily have to provide atleast 25 percent extra capacity for other users.
As per the notification, pipelines exceeding 300 km in length and those originating from a port location, grant of ROU will be subject to fulfillment of certain conditions.
These are oil companies/investors interested in laying a product pipeline originating from a refinery or a port will be required to publish the proposal inviting other interested companies to take capacity in the pipeline.
Company law tribunal to be set up
The Union Cabinet
in November, 2002 decided to set up a company law tribunal for settling
disputes and working out rehabilitation and winding up packages for companies
as part of efforts to tackle industrial sickness.