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'Moral turpitude' may debar firms from taking part in selloff exercise

Mamata Singh

The government is currently working on the list of offences for which it can bar companies from participating in the divestment process. National security is one, and the others would include the 'moral turpitude' equivalent of corporate governance.

"Some offences are serious enough to disqualify companies automatically. These would include cases where a company has put the country's security at stake," say officials.

However for the rest, the government is working out the right set of issues for which it should penalise companies, they add.

The idea is to dissociate companies whose involvement in the process will tarnish the entire process of divestment and the government's image.

While one way is to lay down a set of guidelines like the election commission does, the other would involve looking at a company as a whole and it's reputation in the market.

The former would mean laying down objective criteria on the basis of which the government would disqualify companies. The latter would be a more subjective route and would involve sitting in judgement over each company.

While the objective criteria would be more convenient, the department of divestment is of the view that it would need to keep in mind the spirit of the Securities and Exchange Board of India (Sebi) order.

Sebi's order barring three companies from accessing the capital markets on account of their indulging in activities which had 'vitiated the atmosphere' of the market had sparked off the whole process of drawing up such a list of offences.

"We are currently trying to define the equivalent of 'moral turpitude' in the context of corporate governance," officials say. So, companies will be penalised if their regular style of functioning is such that they have an 'image' of being regular offenders.

If the norms are too strict, there would be no buyers left to pick up government stake in the companies put up for divestment.

On the other hand, if they are too lax, and government equity is sold to companies which are not 'above board', the entire process would be tarnished and the government would be open to charges of having sold stake to tainted companies, say officials.

The new norms will however only apply in case of additional companies where the government will take up divestment and will not have retrospective effect. In cases where the bidders have already submitted expressions of interest and the process has moved forward, it is not possible to change the criteria, they add.

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