In recent years, India has witnessed major overhauls to listing requirements for companies, disclosures, insider trading rules, and other corporate governance norms. These have evolved alongside, and sometimes in response to, some unfortunate incidents of frauds such as the one at Satyam Computer Services in 2009. There have also been instances of failure to abide by corporate governance norms at institutions of the likes of IL&FS, Kingfisher Airlines, and ICICI Bank – all of them in very recent memory.
Even within the larger framework of corporate governance, insider trading of stock exchange-listed shares crops up so often in the public domain. The Securities and Exchange Board of India (SEBI) has been particularly active in investigating such cases and barring perpetrators and entities from accessing the capital markets for certain periods. Since the beginning of this year alone, some of the cases that have come to focus involve big corporate names.
Just last month, SEBI barred Allegro Capital, and one of Biocon’ senior executives, from the securities market for a year in an alleged case of insider trading activities at the biotech company. It also directed them to disgorge gains and interest to the tune of Rs. 24 lakh. Allegro Capital as well as its director Kunal Ashok Kashyap will have to cough up Rs. 10 lakh each as fine.
Earlier, SEBI had barred eight entities, including Capital One and Tesora Capital, for engaging in insider trading in the shares of Infosys. They cannot engage in buying and selling of shares until further orders. Iconic retailer Kishore Biyani too has faced the ire of SEBI as the regulator barred the Future Group founder, his brother Anil Biyani, and some entities from the securities market for a year.
All these cases have brought the spotlight on the roles and responsibilities of the board of directors in maintaining corporate sanctity. Although many of these instances may, or may not, involve directors of companies in which the shares have been traded, the Companies Act 2013 requires disclosures as such be made to the shareholders periodically. Especially if a director who has been found in violation by SEBI is seeking shareholder approval for an appointment or reappointment, it needs to be disclosed.
Curiously, one such company that appears to have opted to remain muted in it’s responsibility for ensuring transparency is Kirloskar Ferrous Industries (KFIL). The company is seeking re-appointment of A.N. Alawani as a Non-Executive Director in the upcoming AGM. Last October, SEBI had penalised Alawani and promoters like Atul Kirloskar for violating norms relating to the securities market. However, the upcoming AGM notice and explanatory statements do not disclose this fact about Mr. Alawani. SEBI’s Listing Obligations and Disclosure Requirement interpretations are subjective but KFIL should seek such an opportunity to table such facts upfront in interest of minority shareholders.
This discussion holds relevance in the face of the market regulators trying to polish corporate governance framework with higher reward for insider trading whistleblowers. SEBI has also amended regulations for Independent Directors, and tweaked the criteria for Invits and REITs last month to promote better practices.
The culmination of such efforts are not just to check frauds and mismanagement, but to ultimately work in the interest of the minority shareholders who bear the brunt of greed of a few in the ecosystem. So as the world is moving towards greater adoption of ESG goals, such initiatives and discussions become even more relevant.
Also read: Vijay Mallya on a weaker ground in extradition case?
