The tough battle against frauds to continue in 2013

Mandarins of Corporate Affairs Ministry, headed by a young minister, have a busy year ahead, as they would be confronted with over 100 pending cases of probe into suspected frauds overflowing from 2012, and look into overhauling the way companies operate and are regulated.

While about three dozen pending cases pertain to 'serious frauds', a vast majority of them are related to a menace called 'multi-level marketing' schemes, where lakhs of investors are suspected to have lost their hard-earned money.

In addition to these cases of suspected frauds and cheating of investors by various companies, there are hundreds of other cases where companies have failed to adhere to one or the other regulation, senior officials say.

They, however, term them as 'routine' matters in comparison to other 'serious' cases.

The officials are hopeful of a much better year ahead in 2013, enthused by the fact that 2012 was an eventful year with strenuous efforts towards legislative reforms and transparency in governance despite instances of some corporate scandals.

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Expectations are also high on the long-awaited new Companies Bill eventually coming into force as it was passed by the Lok Sabha towards the end of its Winter Session. It will now go to the Rajya Sabha in the next session.

Adding to the optimism, a high-profile committee is likely to soon submit its report on ways to improve business climate and boost investor confidence, while the ministry on its part expects stability at the top with change of stewardship to a young minister, Sachin Pilot, after several changes in the past.

When it came to 2012, it was marked with hectic parleys over strengthening of corporate disclosure norms within the ministry corridors.

Besides, the Serious Fraud Investigation Office (SFIO) and the Competition Commission of India (CCI) -- both linked to the Ministry -- too remained busy.

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SFIO is currently conducting its probe in about 35 cases, while close to 90 other cases of alleged duping of investors through MLM and collective investment schemes are also being looked into by the ministry, a senior official said.

However, one major handicap could be shortage of manpower. Corporate Social Responsibility (CSR) is also emerging as a focus area for the Ministry under the reins of Pilot, who assumed charge from Veerappa Moily in October.

The revamped Companies Bill, once in place, would require companies to shell out two per cent of their three-year average net profit towards CSR and non-compliance along with failure to explain the reason would attract penalties.

Simultaneously, MCA is working on framing a comprehensive policy on corporate governance.

According to Pilot, the government intends to bring stringent legislation through Companies Bill, 2011 by having adequate provisions and measures to ensure that companies raise money in a more transparent and accountable manner.

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Against the backdrop of persisting concerns over corporate governance in the country, quite a few frauds also came into light this year. If sportswear maker Reebok India saw alleged fraud by its former executives, political dimensions pushed Purti group of companies -- related to BJP President Nitin Gadkari -- into the news.

SFIO investigations are progressing in many cases including Reebok and those related to multi-level marketing firm SpeakAsiaOnline and Vaishnavi Corporate Communications.

Looking to protect the interest of investors, the Corporate Affairs Ministry along with others is also working on ways to crackdown on fraudulent MLM companies.

Besides, to ensure more transparency in corporate filings and also prevent frauds, the Ministry is making efforts to improve the existing system. At the same time, SFIO is setting up an early warning system to detect any fraudulent activities.

Much younger than its peers, a raft of bold and at times surprising decisions pushed the Competition Commission (CCI) into the centrestage this year, even as issues over regulatory turfs remain. Once the amended Competition Act comes into force, CCI would have powers to vet all voluntary M&A deals.

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Described as the fair trade regulator, CCI slapped a hefty penalty of about Rs 6,300 crore (Rs 63 billion) on 11 cement makers on cartelisation charges this year, though the fine has been appealed before the tribunal.

CCI also hogged the limelight in the context of many other cases, including rejection of cine star Ajay Devgn's complaint against Yash Raj Films.

Making efforts to spread more awareness about competition laws in the country, CCI will be meeting CEOs of top companies and has forged partnerships with various entities including academic institutions and its counterparts in other countries.

Even as SFIO and CCI are gaining reputation as strong institutions, they are also grappling with substantial shortage of skilled manpower.

Meanwhile, a Ministry-appointed committee, headed by former Sebi chief M Damodaran, is expected to submit its report in the next few months to suggest ways to improve business climate in the country.

In addition, a pilot study is in progress for developing a business index that would reflect the overall corporate sentiments in the country.

As a whole, 2013 promises to be hectic for the Ministry, with multiple probe reports and many administrative initiatives, including the transformation to new business reporting format, expected during the year.