DIRECTORS NOT RESPONSIBLE FOR DISHONOURED CHEQUE
Recent Supreme Court Judgment has brought cheers on director’s faces of the companies. The Supreme Court ruled last week that prosecution for issuing a cheque which was dishonoured for want of credit in the bank can be initiated only against the person who issued the cheque and not against the company or directors who were not aware of it. It quashed the Madras High Court order to try the company, the chairman and the managing director in judgment, PJ Agro Tech Ltd. Vs Water Base Ltd. The two companies have entered into an agreement for distribution of prawn feed in Andhra Pradesh. However, it did not succeed and PJ Agro authorized the other company to collect its due from customers who has not paid for the goods. It appointed a coordinator for the purpose. He issued a cheque to Water Base which bounced, leading to the filing of charges under The Negotiable Instrument Act. The Supreme Court explained that the coordinator might have issued the cheque for the benefit of PJ Agro, but the directors of the latter company were not responsible for the default.
CORPORATE GOVERNANCE: AN INDIAN OVERVIEW- I
It was in 1990’s when India opened its doors to the world. Since then India is the one of the largest growing economy in the world. Despite of opportunities there had been a significant rise in financial frauds which resulted Indian government to enact stringent laws. In 1998 the Confederation of Indian Industries (CII) published a desirable code of Corporate Governance (herein after referred as CG) which some companies’ adopted. In 2000 under the chairmanship of Mr. Kumar Mangalam Birla Committee set up by Securities Exchange Board of India (SEBI) introduced ‘Clause 49’ in listing agreement to promote Corporate Governance. Since then various amendments have been made. SEBI in October 2004 further introduced various amendments in the said clause. The revised Clause 49 came into the force wef 01 January 2006.
Today corporate governance is looked upon as a distinctive brand and benchmark in the profile of Corporate Excellence. In India the issue of Corporate Governance has issued lot of importance.
Meaning
Corporate Governance primarily focuses on complete transparency, integrity, and accountability of the management with an increasingly greater focus on investor protection and public intrest.
According to Sir Adrian Cadbury CG is “exercise of power in a responsible way”.
Corporate Governance is the system by which companies are directed and governed by the management in the best intrest of the stakeholders and others ensuring better management, greater transparency and timely financial reporting.
In brief CG is not just having various committees but ensuring that the suggestion given by that are transparent benefiting not only shareholders but also the stakeholders. The 3 aspect of corporate governance includes accountability, transparency, and equality of treatment for all stakeholders.
World Overview
United Kingdom
UK was the first country to adopt the CG Principles in the year 1990. The Combined Code on Corporate Governance (Revised 2008) issued by financial Reporting Council, London deals with CG issues.
United States of America
Financial scandals in many of US companies like Enron, World com, Global Crossing resulted US Congress to pass ‘Accounting Industry Reform Act-2002’ widely known as Sarbanes Oxley Act and changes in New York Stock Exchange Listing Rules.
Germany
In Germany CG is followed through a code known as Cromme Code 2002. The code was further amended in 2009.
In the next part we will discuss about features of Corporate Governance in India & Clause 49A of listing Agreement.
SATTYAM: AN INDIAN VERSION OF WORLDCOM
I am of the veiw that we should not panic by the exaggeration of the Satyam issue made by media and wait till any official statements from SEBI, Ministry of Company Afairs, The Institute of Chartered Accountants of India.
Satyam is the country’s fourth largest IT firm and has over 51,000 employees. B. Ramalinga Raju
Chairman, Satyam Computer Services Ltd (now resigned) in his letter to Board Members expressed that it had a great burden on his conscience. Through this letter he brought the following fact into limelight.
1. The balance sheet carries as of September 30, 2008
a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore reflected in the books)
b) An accrued interest of Rs 376 crore which is non-existent
c) An understated liability of Rs 1,230 crore on account of funds arranged by me
d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)
2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenue). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.
The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs 8.392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations – thereby significantly increasing the costs.
Raju further said he or the company’s MD did not take “even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results.”
THE COMPANIES BILL, 2008 ON ITS WAY
On Thursday, 23rd Oct. 2008 The Company Bill, 2008 was tabled on the Parliament. If the bill gets enacted then new Company Act 2008 will supersede the current Act. According to Corporate Affairs Minister Mr. Prem chand Gupta the new act would make things simpler. In the year 1956 their were 36,000 companies whereas in 2007 their were 7.5 lacs.
HISTORY
In India Ist Companies Act was passed in 1850. There after Company Act, 1866 was enacted & then followed by the Company Act 1913 which was replaced by the present The Company Act 1956. The Company Act 1999, 2000, 2002 had amended the Company Act, 1956.
WHAT’S NEW?
The Company Bill, 2008 paves way to:
- One Person Company (OPC).
- Limited Liability Partnership (LLP).
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Appointment of 33% independent directors on board.
- Many more……..