“Recent corporate scams have highlighted the necessity for enacting or amending suitable laws to protect the interests of investors and share- holders.” Give arguments For and Against this view.
Recent corporate bungling in Satyam Computers has triggered
a debate in the corporate circles as well in the government. The attempted move was aimed at benefiting two promoters of Maytas by more than Rs 7000 crore, by proposing to buy their shareholding in Maytas Infrastructure in a slip-shod manner, without any transparency. The most startling issue was that the proposal was only to buy the stake of the promoters and not that of the company as a whole. This was an overt move to transfer the investors’ money from Satyam Computers to two promoters of Maytas, who happen to be the sons of the CMD of Satyam Computers, without following any prescribed procedure under the Companies Act, highlighting the need for amending the statutes to prevent the recurrence of such incidents.
Arguments For the View
(a) The Companies Act was legislated several decades ago when
the trade and industry were in a nascent stage in the country. At that stage several contingencies, which are obvious now, could not be anticipated. Hence, with the changing times, the legislation must also be amended suitably.
(b) Fraudulent moves by the corporate houses have been experienced even in the past. It is a matter of concern, as the lacuna in law has been identified by the law breakers very well. With a view to obviate such moves in future, it is necessary to plug the loopholes by enacting a new piece of legislation.
(c) It is the responsibility of the government to protect the rights of the small investors. The government must come out with a new set of legislation or amend the Companies Law suitably. Such a move would also restore the confidence of the investors in the markets.
(d) By virtue of their shareholding, the promoters are at the helm of affairs of the companies promoted by them and are actively involved in the decision-making process. Unless there are certain safeguards, such decisions aimed at benefiting the promoters would continue to take place.
Arguments Against the View
(a) The case of Satyam Computers is an isolated one and cannot be treated as a routine affair. It would be inappropriate to enact another piece of legislation just because of a mischievous move by one company. The possibility of similar moves by other companies in future, which are otherwise covered by the existing laws, is remote.
(b) The existing legal framework is sufficient to tackle frauds. The need is to execute the existing legal framework efficiently, rather than creating new set of laws and rules.
(c) SEBI has been set up by the government to safeguard the interests of the investors and to ensure that no company enters in to any unethical practice. There appears to be no need to have new set of laws to tackle such problems in future.
(d) Deregulation of the economy is one of the objectives of the new economic policy. Under such a scenario, it would be wrong to enact new laws to regulate the economy further.