India Inc pushes for dilution, delay of new regime

Officials of top corporate groups, directors and consultants are in constant discussion with ministers, officials and regulators to cushion the blow of the new corporate governance norms on their existing business arrangements. These interest groups are working for months now to dilute some provisions and defer the implementation of others. As the Securities and Exchange Board of India (Sebi) deadline of October nears, such activity is said to have peaked in the corridors of power.

A person familiar with these discussions said the industry has taken its grievances to the "topmost level." A chief financial officer of a Bangalore-based conglomerate said the government is in discussions with industry and will provide clarifications. An independent director, whose directorships exceed the limits, is also camping in the capital to bell the big cats.

Corporate India saw the writing on the wall early and jumped into action . In May, soon after the Narendra Modi government took over, some industry captains met the new finance minister. In their hands were copies of recommendations from one of the industry bodies. Their main concern: New corporate governance norms governing related party transactions (RPTs).

The note talked about several new provisions in the new companies act and amendments to the listing agreement made by Sebi in relation to RPTs. The minister is said to have promised to look into the matter. Subsequently on June 21, chief financial officers, directors and consultants met the officials of ministry of corporate affairs along with representatives of the major industry bodies to discuss the various issues. Rarely has something united the industry like the proposed regime on RPTs .

Since these meetings, the ministry has been issuing clarifications on the rules and provisions of Section 188 and their applicability. The government is also said to have nudged Sebi to relook into its amendments. In July, Sebi had its consultations on how to tweak the regulations to suit some of the larger corporations. But, the regulator has not yet talked about amending the norms in any manner. In fact Sebi Chairman U K Sinha recently said there will not be any relaxation of the October 1 deadline for implementation of the new norms. Several senior company executives, directors and compliance professionals Business Standard spoke to were uniformly confident that the norms would not be implemented in their current form. According to some of these people, Sebi was to take up the new corporate governance norms in its meet with the finance minister on August 10. They point out that no statement was made after this meeting on the subject as a positive sign.

It is not clear how Sebi will handle this rollback as it has already notified the changes in listing agreement; some key clarifications the industry was expecting in MCA rules came soon after the Parliament session ended. "A holistic review of this is requested keeping in view the practical business aspects into consideration. In absence of the two requirements being aligned, there would be serious implications for running of the business effectively and efficiently," representation from an industry body said.

This essentially means dilution. Sebi has now required that all existing 'material' related party contracts or arrangements as on the date of the circular which are likely to continue beyond March 31, 2015, to be placed for approval of the shareholders in the first general meeting subsequent to October 1, 2014. But, according to the Act, an RPT requires such shareholders' approval only if it is not at 'arms-length' or not in the 'ordinary course of business'. Another key area, where companies are seeing red is the all encompassing definition of RPTs given by Sebi. The industry wants subsidiaries and joint ventures left out.