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Investigate the Ministry of Company Affairs!
January 19, 2009
This may sound facetious, but more often than not, and this will probably be true of Satyam [Get Quote] as well once the real details are known, siphoning off of funds is done through lending to subsidiaries and allied firms, and then not recovering these funds.
Yet, in a large number of cases, over the years, bureaucrats at the MCA have chosen to 'compound' the offence instead of prosecuting and removing the management - so, in many cases, companies that saw several hundred crore rupees being siphoned off got away with fines running into a few thousand rupees.
The problem, and hence the advice, is that there is no way of knowing whether this practice is still prevalent today. While MCA officials proudly proclaim that, unlike in the 1990s, no company is 'vanishing' after raising IPO money, they're a lot less sanguine about vanishing funds.
A great blow-by-blow account of how the MCA process works is the story of the Shree Krishna group of companies.
In this case, group firms 'lent' money to affiliates for a variety of purposes, including buying shares of companies.
The point is that, even today, there is no way of knowing what offences are being 'compounded' in this manner.
Even today, believe it or not, a company can raise money from the public for one purpose and then, after an AGM, change the purpose for which it raised the funds. So let's say it doesn't have an AGM or holds it in a faraway place so that shareholders don't get there.
What's the penalty? A few thousand rupees. Ironically, in the aborted Satyam-Maytas deal, the company never even needed to get the MCA's approval as Satyam was buying shares (in Maytas) and that doesn't require any government permission. An audit, a serious one, of all the cases of compounding of offences over the years would surely throw up interesting results.
Even if you assume that all of this is in the past, or does not apply to the SFIO which, by its very nature, examines only a handful of cases, the problem does not stop - how seriously the SFIO with just 10-12 officers (that's a fourth of its sanctioned strength) can examine even the limited cases it gets is another matter.
The SFIO, by the way, is not even a statutory body and so does not have powers of search and seizure and can't even interrogate people freely - perhaps why it is seeking the court's permission to be able to interrogate Ramalinga Raju and Satyam CFO V Srinivas.
Even the documents from Satyam's offices have not been shared with the SFIO. This is the real serious fraud.
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