Tuesday, January 13, 2015

Regulatory reaction 


Satyam’s downfall has also drawn attention to Sebi. Although the regulator’s probe is in its nascent stages, it is working with the Registrar of Companies office to comb through records to ascertain the scandal’s scale. “They took some time to carve out responsibilities between themselves and the Registrar… which was required to speed things up and avoid the duplication of efforts,” says one Mumbai-based lawyer. Criminal proceedings have been launched by the government which has been proactive in the matter and Satyam’s pre-scandal board has been replaced with six new directors. While it took the federal government 48 hours to act, India’s constitutional structure requires state authorities to act first before the central government can intervene. “It is disappointing to note that the Sebi and SFIO, which are the most competent to investigate the fraud haven’t even been given the access to interrogate Raju, while the state police, which lacks the expertise to investigate such sophisticated white collar crimes is leading the investigations,” says Ruchir Sinha, at Nishith Desai Associates. He adds that such bureaucratic shackles which obstruct investigations should be removed, and a more efficacious regulatory regime needs to be developed. All of the lawyers contacted by Asialaw believe Sebi’s conduct has been exemplary. One partner believes that it was good that the fiasco has prompted Sebi to be stricter with promoters. According to Sinha, Sebi has amended the Takeover Code to make disclosure of shares by promoters mandatory, but it remains to be seen how it addresses the issue as no amendments have yet been notified. The main concern now is the false reporting of financial statements which impacts share prices and hurts investors – whom the regulator is supposed to protect. “The Satyam scandal is likely to cause the regulators to be more proactive and vigilant. Compliance costs are likely to shoot up as auditors will be far more diligent than they have been, rely less on management explanations and may insist on independent verifications,” says Nishchal Joshipura, also of Nishith Desai Associates.

http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Ma%20Lab/AsiaLaw-Satyam.pdf

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