PSUs unhappy with fines over corporate governance violations
This is not the first instance where listed government entities have refused to comply with Sebi rules.
Some of the leading PSUs including Hindustan Petroleum (HPCL), NHPC, Bharat Dynamics (BDL) and Power Finance Corporation (PFC) have declined to pay the fines, according to an ET study of the companies’ compliance reports. Their contention is that they are companies owned by the government, which holds the power to make any board appointments, and thus should not be subject to fines, said people familiar with the matter.
As per the standard operating procedure prescribed by the Securities and Exchange Board of India (Sebi), any company violating the corporate governance rules for more than two successive quarters and doesn’t pay the fine should be shifted to trade-totrade category.
Exchanges have already taken action against several private companies for not complying with the governance rules. Stocks, which were suspended from trading for non-compliance of these regulations include Hind Syntex, Jain Studios, PVP Ventures and PBR Infrastructure.
Several listed PSUs are currently in violation of the corporate governance rules for over three quarters now.
Emails sent to HPCL, NHPC, BDL and PFC remained unanswered.
HPCL’s secretarial audit report said, “The company has requested the stock exchanges to a waiver of fine levied by the exchanges….such noncompliance is not due to negligence/ default by the company.”
PFC, in its annual secretarial audit report for FY19, said, “The company has submitted a reply to the stock exchange that in terms of clause 86 of Articles of Association of the company, the members of the board are appointed by President of India and accordingly the same (fine) should be withdrawn.”
Legal experts said some of the provisions of Sebi’s new corporate governance rules are in conflict with the laws applicable to the PSUs.
For instance, as per Sebi rules, every company needs to form a nomination and remuneration committee which would evaluate the performance remuneration related issues of the board. However, all the board appointees of PSUs are technically picked by the President of India and hence such committee would not be able to review the board performance.
Lawyers said corporate governance rules, however, should be the same for all listed are applicable to all the listed companies irrespective of whether they are state-owned or not. “The corporate governance norms applicable to listed companies do not seem to distinguish between a listed PSU and other listed companies,” said Moin Ladha, partner, Khaitan & Co. “Therefore, unless there is specific exception/ relaxation they are relying on like the one in relation to compliance with minimum public shareholding norms, these norms will have to be complied with.”
A company secretary, who spoke on the condition of anonymity, said it is difficult to implement the new governance norms for state-owned entities since there is a wide gap in the administrative procedures between public and private sector companies.
“In the past we faced the same issue for some of the PSU banks since there was delay in board appointments. We have requested Sebi to make provide relaxations for PSUs,” said the company secretary, who advises government companies.
The market regulator had notified the new corporate governance rules in October last year, based on recommendations given by the Uday Kotak headed committee on corporate governance. This is not the first instance where listed government entities have refused to comply with Sebi rules. When the market regulator introduced minimum public shareholding (MPS) norms in 2012-13, several stateowned entities didn’t comply with the new requirements.