Navratnas may also join listing rule violators’ club

ONGC, SAIL, BPCL, MTNL Seen
Part Of The Non-Compliant Group

Sep 13, 2007
Ashish Rukhaiyar
MUMBAI

EVEN as capital market regulator Sebi is gearing up to take action against five public sector undertakings (PSUs) for non-compliance with Clause 49, the near future may well see a few more companies join the list. Sources said that exchanges have sent a list of nearly 20 PSUs, which includes some of the Navratnas, to the regulator for not being Clause 49 compliant.

As per Sebi regulations, companies with equity of over Rs 3 crore are required to adhere to the Clause 49 provision, which entails the inclusion of independent directors on the board. Clause 49 has partly been inspired by the new corporate governance norms in the US, which were revised following a slew of scandals. However, the revised provision received poor response from several Indian companies, citing impracticality in implementing them.

In a surprise move, Sebi on Tuesday initiated, for the first time, adjudication proceedings against 20 companies including five PSUs. While the companies names were not disclosed, the action against the PSUs has been on account of non-compliance with provisions relating to board composition. The circular clearly mentioned that action had been taken on the basis of quarterly reports sent by stock exchanges.

According to sources, this has caught most exchange authorities by surprise as the quarterly report that they send to Sebi includes names of some of the biggest PSUs of the country.

“To the best of my knowledge, there are 18 PSUs in the Clause 49 non-compliant list, which includes seven Navratnas,” said a source. ONGC, SAIL, BPCL, MTNL, IOC, GAIL and NTPC are part of the 18 PSUs that figure in the list, added the source.

Meanwhile, the other prominent PSUs that are part of the exchange’s quarterly report include Mangalore Refinery & Petrochemicals (MRPL), Minerals & Metals Trading (MMTC), ITI, RCF, Nalco, Hindustan Copper, Hindustan Fluorocarbons, National Mineral Development, National Fertilizers and State Trading Corporation (STC), among others.

Interestingly, there are two theories doing the rounds in the exchanges, say sources. While some say that the first list of five PSUs might act as a warning to the other erring public sector entities, there are others who are of the opinion that more such circulars are in the offing.

Commenting on the methodology adopted for identifying the five non-compliant PSUs, officials said that it is possible that Sebi might have used some more filters to arrive at the five PSUs that are part of the circular.