New Delhi: A last-minute intervention by the ministry of corporate affairs, or MCA, cleared the way for the election of Datla Hanumanta Raju as the new president of the Institute of Company Secretaries of India (ICSI), the apex body of company secretaries, professionals who ensure their firms’ adherence to company law.
Raju’s candidature had, as reported by Mint on 14 January, become controversial after his name figured on the MCA website as a director of a so-called vanishing company that defrauded stock market investors by raising money and, subsequently, disappearing.
Clean chit: ICSI president Datla Hanumanta Raju.
Experts say that to clear his name Raju will require a similar clearance from the Securities and Exchange Board of India (Sebi), the capital market regulator, since part of the violations fall under its purview. The government committee which monitored the vanishing companies consist of representatives from MCA, Sebi and the finance ministry.
Raju’s case, including the clean chit issued on 16 January, the last working day before the election, assumes importance beyond ICSI elections as it raises questions about the efficacy of multi-regulatory investigations such as the ongoing one into Satyam Computer Services Ltd, its promoters and associate firms after the company’s founder B. Ramalinga Raju revealed on 7 January that he had fudged its books to the tune of at least Rs7,136 crore.
A Sebi official, who did not want to be identified, maintained that any of the committee members could delete a person’s name only if it was a mere clerical error. If it is for any other reason, then it requires to be cleared by the full committee, the official added.
According to Akil Hirani, managing partner of law firm Majmudar and Co., the monitoring committee should be the agency that coordinates actions of different regulatory agencies which can issue directions under pertinent statutes such as the Companies Act or the Securities Contracts Act.
“If the MCA feels it (Raju’s defence) is valid , they can exempt him from Companies Act violations,” Hirani said.
Still, the way such committee’s function and the procedure to deal with appeals of individuals and companies being investigated by such committees remains unclear.
MCA defended its decision to make the last-minute intervention.
“It was due to bureaucratic delays that Raju’s name was not removed from the list of those involved with vanishing companies. He was associated with the respective company only for a short while. His opposition may have been politically motivated and the ministry would go by the convention, where the vice-president becomes the president,” said a senior official at MCA, who did not want to be named.
MCA gave Raju a “four-line letter” on 16 January clearing him and said his name would be removed from the ministry’s blacklist of people associated with vanishing companies.
Brushing off the controversy, Raju declined to name the MCA official who had signed the letter.
In the early 1990s, India saw a capital market boom which resulted in a number of newly-formed companies raising money through initial public offerings, or IPOs. Some of the companies that raised money from investors failed to comply with stock exchange rules such as filing their financial statements.
Subsequent investigations by the stock exchanges showed that many of these companies did not exist at the addresses mentioned in the share sale document.
In all, 229 companies are estimated to have vanished with close to Rs800 crore of investor money.
Sebi, MCA, and the finance ministry formed a committee to prosecute the promoters and directors of these companies, which were dubbed vanishing companies.
Kamakshi Housing Finance was incorporated on 6 December 1994 with Raju as an independent director and non-executive chairman. In March 1995, the company’s IPO raised Rs5.71 crore, according to MCA’s website.
“I resigned (as independent director) on 25 August 1995,” Raju said in a recent interview with Mint.
Subsequently, the management of Kamakshi Housing changed (the company was renamed Kisha Impex Ltd, according to the MCA website), Raju added.
A public notice on Sebi’s website dated 14 September 1999 listed Kamakshi Housing as a vanishing company, and asked promoters and directors, including Raju, to respond within 15 days. Raju did not respond as he was unaware of the notice till 2004. Subsequently, he tried to clear his name, he said.
In the elections held by ICSI on Monday, Vinayak Khanvalkar was elected vice-president.