20 firms get Sebi rap for violation of clause 49

The Securities and Exchange Board of India (Sebi) has finally got tough with those firms which did not comply with the Clause 49 norms. On Tuesday it initiated adjudication proceedings against a total of 20 companies from the private sector and the public sector. Of the 20, five companies are public sector companies against whom proceedings have been launched for non-compliance with provisions relating to the composition of the board. The remaining 15 companies are in the private sector.
Sebi chairman M. Damodaran in his trademark gentle but acerbic wit said, "there was serious criticism against Sebi that it was only barking and not biting. I think we barked long enough and needed to bite." Clause 49 is meant to protect shareholders. The composition of the board with independent directors, signing of accounts, constitution of committees — everything in the governance framework is meant to protect investors.
In the action taken on Tuesday proceedings have been initiated against three of the 15 private sector companies for non-compliance with almost all the major provisions of Clause 49; against two companies for non-compliance with provisions like board/audit committee composition and Ceo/Cfo certification; while for the balance 10 companies, proceedings have been initiated for non-submission of compliance reports on Clause 49 to the stock exchanges.
The regulator declined to give the names of the companies involved. It said that some companies may have a valid reason for non-compliance so it would not be fair. It said that at this stage it wanted to "send a signal to errant companies that they will have to face penalty if they do not comply with the requirements of corporate governance." Sebi wa-nts firms to be aware that they should take the implementation of clause 49 seriously in letter and spirit.

Sebi withdraws recognition to HSE

Sebi has withdrawn the recognition granted to the Hyderabad Stock Exchange Ltd as the bourse failed to dilute the mandated 51 per cent stake to non-brokers by August 28. "The exchange had failed to dilute 51 per cent of its equity share capital to the public other than shareholders having trading rights on or before August 28, 2007," the Sebi said.
The regulator said that in terms of Section 5(2) of the Securities Contracts (Regulation) Act, 1956, the recognition granted to HSE "stands withdrawn with effect from August 29, 2007." The Sebi had notified the Hyderabad Stock Exchange Ltd. (Corporatisation and Demutualisation) Scheme on August 29, 2005.
The SCRA stipulates that every recognised stock exchange whose scheme for corporatisation and demutualisation has been approved by Sebi shall ensure that at least fifty-one cent of its equity share capital is held by the public other than shareholders having trading rights (that is the borkers) , within 24 from the date of publication of the scheme. The HSE has failed to attract investors due a pending case in the AP HC over 17,000 square yard land, where the HSE building is situated. The land violates AP Urban Land Ceiling Act.
According to HSE director T.S. Rao, "The HSE had fixed the price at Rs 450 per share, but they could not convince investors about the value of the shares due to the litigation over Rs 200 crore worth land. Out of 30 lakh shares of HSE, 71 per cent of shareholders were ready to sell their stake."

Rs 1 lakh cr locked in frozen demat accounts

Shares worth over Rs 1,00,257 crore remain locked with 10,76,431 demat accounts being frozen for not having the mandatory Permanent Account Numbers (PAN) to trade in the stock markets.
This was stated by the Union Minister of State for Finance, Mr Pawan Kumar Bansal, in response to an unstarred question seeking details on whether the National Securities Depositories Ltd and the Central Depositories Services (India) Ltd had frozen accounts for not having PAN details.
The Securities and Exchange Board of India had made PAN mandatory for trading in the stock markets from January 1. The aim was to facilitate a sound audit trail.
Totally 25,21,542 demat accounts were frozen, of which 14,45,111 accounts had no shares in their portfolio, the Minister said.
According to data available, the two depositories maintain more than 105 lakh demat accounts, up from about 99 lakh at the beginning of this year.
But the number of active accounts, with investors having provided PAN details, is only about 80 lakh at present, compared to about 55 lakh when the suspension exercise began.