January 18
Transcript of interview by James Lamont, Financial Times South Asia bureau chief, with Prem Chand Gupta, India’s minister of corporate affairs, in Delhi on Saturday 17 January 2009
FT: Do you believe the contents of former Satyam chairman B. Ramalinga Raju’s letter admitting to fraud?
Gupta: You see now the letter is there. It has been sent to the Securities and Exchange Board of India, the stock exchange, to us and it has been verified on the phone. The investigation has been ordered. So it is a matter of investigation if there is any doubt about the letter. I don’t see any reason to doubt it, otherwise Mr Raju would have disowned the letter.
FT: Has the speed of the investigation been too slow?
Gupta: We are satisfied that in a short span of a few days an inspection was ordered into eight companies under Section 209A of the Companies Act. The investigation by the Serious Fraud Investigation Office has been ordered in the main company Satyam under Section 235 of the Companies Act and if the investigators find the scope goes beyond this company they can always recommend to the government the extension of the investigation to those companies. So any number of companies, entities and individuals can be examined.
FT: Will the investigations look at the Maytas companies?
Gupta: Inspection under Section 209 is already ordered. Since SFIO is looking into the issue of Satyam if they find that there are linkages between the two companies and an investigation is necessary in the case of Maytas, they can always recommend it to the government and the government can always take a view on that.
FT: What is your opinion of the preliminary findings of the Registrar of Companies?
Gupta: On the face of it the Registrar of Companies feels that various figures or representations made on the balance sheet are not true and there seems to be inflated figures. But it’s a matter of details for the investigation.
FT: Where does the greatest risk lie in the audit or bank statements?
Gupta: We can’t say at this stage. I wouldn’t like to influence the investigation process. It is for the regulators to see what went wrong.
FT: There are 53,000 people employed at Satyam. Will the government launch a bailout to protect their jobs?
Gupta: As far as a bailout is concerned the company has not asked for a bailout, and you will appreciate that the government cannot bail out private companies where a fraud has been committed. This is not the practice and this should not be the practice.
Satyam seems to be a sound company. The 53,000 or so employees of the company are assets of the company, if some of them are not fictitious. Those who are on the payroll, those who are really working are assets of the company.
From the preliminary information we got shows there does not seem to be major liability on Satyam from any bank or financial institution. Satyam has very good clients. Many are Fortune 500 companies and governments like Singapore, Chinese airports or the Australian government or the 2010 football tournament. These are entities of repute and means. Satyam has receivables from its clients. So the bailout hasn’t been asked for.
It’s now for the board, because we have superseded the previous board. Six persons of eminence and repute have been appointed to the board. They know their job very well. Among them, we have one of the best bankers in Deepak Parekh, Kiran Karnik, who is in a way the mentor of the Indian IT industry. And we have Tarun Das and Mr C. Achuthan who know the rules and regulations very well.
FT: Will they be able to save the company?
Gupta: These people of eminence would do their best to re-establish the company and [make sure] that all the operations go smoothly and all the employees are happy.
FT: What damage has this done to Indian business?
Gupta: The Satyam case is an aberration. We feel this is an aberration and that we have a responsible corporate sector.
FT: The business organisation FICCI says only 90 per cent of Indian companies obey corporate governance rules. Do you agree?
Gupta: I wouldn’t like to comment on this. It would be unfair to create panic. I feel Satyam was an aberration.
FT: What lessons will regulators learn from this?
Gupta: We have always been supporter of the idea that the corporate sector regulates itself but with accountability. I always felt there should be a disclosure-based regime rather than an approval-based system. So I hope one can retain this faith. In the new Companies Bill, which I introduced to parliament, we have taken certain precautions and anticipated certain amendments to the existing system.
Number one we have considered the term ’independent director’. Under the present law, all the directors are equally responsible for any omission or commission committed by a company. In the new Companies Bill only officials of the company, who are responsible for conducting business on a day-to-day basis like the CFO, CEO, COO, managing director, executive director will be responsible for omission and commission.
FT: So you want to beef up independent directors on boards?
Gupta: Yes. Secondly, the penalty right now for various offences is compoundable. In the new Companies Bill the offences concerning fraud, cheating, misdeclaration, breach of trust would be penal offences.
Thirdly, the penalty would be commensurate with the offence committed. Right now under the present law the penalty is very small. So we have tried to keep a fine balance between stakeholders and regulators. We have also provided for special courts for the speedy trial of corporate frauds.
FT: Will these be sufficient, or will you have to introduce new regulation?
Gupta: This is an ongoing process. One learns with the time and the experience and the new developments. Nothing is final.
FT: What will the investigation into share dealing turn up?
Gupta: Sebi is looking into this issue. They are the competent authority as far as this is concerned. They have taken various steps in this direction.
FT: Are you concerned about how family business operates in India?
Gupta: Historically and traditionally, we have had in this country the concept of family business. Because of one aberration, the system cannot be ridiculed.
FT: Why did Raju confess?
Gupta: I wouldn’t like to comment on that. This is an issue that has to be investigated.
FT: Do the regulators all speak with one voice or are you competing with one another?
Gupta: All the actions are being taken in a coordinated manner. We have proved to the world that different agencies in India can work together.
Courtesy : The Financial Times
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