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An investor group registered with the capital markets regulator has issued notices to the directors of the National Stock Exchange (NSE) and the BSE (formerly Bombay Stock Exchange), asking them to take action to address alleged corporate governance failures in the matter of suspended companies.
Midas Touch Investors Association, based in this city, has alleged the directors of the exchanges have failed to discharge their duties on redressing investor grievances. It has asked them to bring the defaulters to book immediately. It also asked the directors to intimate the action taken within 30 days.
This is the latest salvo fired by the investors in the fight against suspended companies. The high court here has already issued notices to the exchanges, to the Securities and Exchange Board of India (Sebi) and the government, in a public interest suit on the same matter, returnable by May 1.
About Rs 58,000 crore of shareholders’ money is stuck in about 1,850 companies, which have been suspended from trading on the exchanges. Investors are unable to sell the shares as these no longer traded; the promoters and directors of these companies have gone free, in effect, as there is no action beyond the suspension of the stock.
Midas notes the offence of failure to comply with the listing agreement, on conviction, is punishable with imprisonment up to 10 years and/or fine up to Rs 25 crore. However, the exchanges have not invoked these provisions. This inaction, spread over nearly nine years, is appalling and smacks of an unholy nexus, the association alleged.
“We hereby urge you to take all the steps necessary to reform corporate governance of BSE, which ensures timely and expeditious administration of laws, rules and regulations, without fear or favour, in a transparent manner. A beginning may be made by taking expeditious action against companies which have failed to comply with the terms of the listing agreement,” Virendra Jain, president, Midas Touch, said in a letter dated April 14. A similarly worded notice was sent to the NSE directors.
S B Mathur, chairman, NSE, said a letter had come to them and the management “are in the process of sending it to me. In any case, other directors have brought the matter to the notice of management. They will be taking necessary action.”
Mathur’s colleague on the NSE board and a veteran in the field of financial market architecture, Y H Malegam, said he was yet to see the notice. However, he said, the powers of an exchange were limited in the matter of suspended companies. “The relationship between a company and an exchange is in the nature of a contract of listing agreement. It will be dangerous not to suspend the companies which have not complied with the listing agreement. The power to administer the various provisions of the law with regard to listed companies is vested with Sebi,” Malegam said.
A call to Keki Mistry, a shareholder director of BSE went unanswered. Other BSE directors were not available for comment. Turn to TSI, Page 2 >
Jain of Midas Touch said in the notice that stock exchanges had been entrusted the responsibility as the first-line regulator of companies whose securities are listed under the Securities Contract (Regulation) Act. “This regulatory failure of the board of directors, and especially of the ‘public interest directors’ is galling, as they are nominated by Sebi with the objective of protecting the interests of investors in the securities market. The so-called ‘public interest directors’ have failed to discharge their duties and inspire investor/public confidence in the integrity of the market to the detriment of the economy.”
The notice further alleged that the directors, “have not acted as per the Code of Conduct and Code of Ethics specified for public interest directors and directors on the governing board of stock exchanges under the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporation) Regulations, 2012”.
This is the first instance of Indian investors taking direct action against a board of directors. In the recent past, TCI, the UK-based hedge fund, had sued the directors of Coal India for alleged failure to perform fiduciary duties.
VALUE RECOVERY
- Around 1,850 companies suspended from trading
- Rs 58,000 cr of investor money stuck
- Midas says exchanges avoiding taking action against errant promoters
- Directors fail in duties to protect investors
- Midas wants response from directors in 30 days
