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Law needed to make corporate sector accountable: Arun Jaitley

By Our Special Correspondent

TIRUPATI, SEPT. 29. The Union Minister for Law, Justice and Company Affairs, Mr. Arun Jaitley, has done some loud-thinking on the future of corporate governance vis-a-vis the liabilities of the directors as individual entities in respect of corporate frauds, the legislative measures to make them more accountable and the degree of deterrence in dealing with delinquent directors.

Inaugurating a national seminar on `Corporate Governance and Directors' Responsibilities, Duties and Liabilities under the Corporate Law and Industrial Law' organised here on Friday by the Institute of the Company Secretaries of India, Mr. Jaitley referred to the amendments made to the statutes concerned which sought to ``lift the corporate veil'' used as a camouflage by company directors to get away with fraudulent dealings.

He said the 19th century principle of looking only at the mask and not at the face behind had gone.

The principle now was to see behind the mask and chargesheet those behind the corporate frauds, disqualify them and make them follow the healthy corporate principles evolved to ensure a good corporate governance and to protect the interests of the investors and the state.

He said that in the recent past the gullible investors were left impoverished while the promoters/directors of the fly- by-night plantation companies and non-banking finance companies not only swindled huge public money but also got away with the fraud using the corporate veil.

The new clause introduced recently made it mandatory for the company directors to enclose with the company's annual report the ``directors' responsibility report''. This would go a long way in making the directors more accountable and their operations transparent.

The Minister also wondered whether the existing laws were enough to distinguish between a honest failure and failures committed with malafide intentions by a director.

He said nearly 45 per cent of companies, including many profit- making ones, failed to pay the dividends to share holders while some had not even paid back the deposit amounts to the depositors.

He pointed out that it was also to be seen whether the Government's ``over-kill'' to discipline the directors by using deterrent laws and stringent punishments would be counterproductive, as they had the inherent danger of discouraging best of the professionals from entering the corporate sector, and they could make some professionals even quit the corporate sector.

``Should we use a hammer to kill a fly which in the process would disturb all the flies in the garden?''

He pointed out that gone were the days of ``family business'' and said that what was needed now were companies with a large and wide network of shareholders and professional managers in tune with the emerging business and economic trends the world over.

The concept of corporate governance must be a good blend of ethics and performance. Growing government disinvestment and increasing thrust on privatisation, in the changed role as the custodian of the economy, trade, business and industry had a greater responsibility in promoting private investment and the investors' confidence.

The role of the State as the investor was fast diminishing and it was now only a felicitator and formulator of policies, the Minister said and hoped that the delegates attending the seminar would address the problems.

Mr. B.V. Goud, MD and CEO, Stock Holding Corporation of India, gave a key note address. Mr. A. Ramaswamy, Joint Secretary, Department of Company Affairs, gave a special talk where he painted a green picture of stable economy, industrial growth, higher foreign exchange and higher food production.

Dr. P.V.S. Jaganmohan Rao, president of the ICSI, presided.

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