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Did Nitin Gadkari violate company law?

Last updated on: April 15, 2016 11:54 IST

Minister for Shipping, Road Transport and Highways Nitin Gadkari said that the government owned 'Shipping Corporation of India will be soon announcing record profits ending consecutive years of losses.'

Will this announcement have any positive impact on the stock price when the markets open for trade on Monday, April 18 at 9.15 am?

More importantly, is the minister in violation of any Indian law by making such a statement and can the words 'record profits ending consecutive years of losses' be construed as divulging material information?

Minister for Shipping, Road Transport and Highways Nitin Gadkari addressing a press conference on the sidelines of Maritime India Summit 2016

IMAGE: Minister for Shipping, Road Transport and Highways Nitin Gadkari addresses a press conference on the sidelines of the Maritime India Summit 2016; Photograph: Prasanna D Zore/Rediff.com

When Prasanna D Zore/Rediff.com asked Minister for Shipping, Road Transport and Highways Nitin Gadkari if he had violated any Indian law or divulged 'material information', the minister said he had not violated any law.

Gadkari was speaking at the inaugural session of the Maritime India Summit 2016 on April 14 in the presence of Prime Minister Narendra Modi, who inaugurated the three-day event.

As per the quarterly results available on the Shipping Corporation of India website (External link) as well as the quarterly result statements sent by the company to the National Stock Exchange, SCI, which made profits of Rs 567.35 crore for the financial year ending March 31, 2011, fell upon bad times when it recorded net loss of Rs 428.81 crore for the financial year ending March 31, 2012.

Then again, the company reported a net loss of Rs 114.31 crore for the financial year ending March 31, 2013; and then again a net loss of Rs 274.66 for the financial year ending March 31, 2014 ('consecutive years of losses', as said by the minister).

The company's fortunes turned around again when for the financial year ending March 31, 2015, it reported a net profit of Rs 200.93 crore.

The SCI is yet to declare its annual results for the period ending March 31, 2016.

However, for the nine-month period ending December 31, 2015, that is from April 1, 2015 till December 31, 2015, the SCI -- as per the quarterly results available on the company's official website as well as those available with the National Stock Exchange -- reported standalone net profit of Rs 384.41 crore, a 286.57 per cent jump, compared to its net profit reported for the nine-month ending December 31, 2014, which was at Rs 99.44 core. (Source: External link).

And it is in this context that Gadkari, while speaking at the inaugural session of Maritime India Summit 2016, said, "Shipping Corporation of India will be soon announcing record profits ending consecutive years of losses."

But did the minister in his enthusiasm divulge 'material information' that could have an impact on its stock price when it opens for trade on April 18, at 9.15 am?

The Bombay Stock Exchange and National Stock Exchange were closed for trade on April 14, 2016 on account of Dr Ambedkar's 125th birth anniversary and shall remain closed on Friday on account of Ram Navmi.

India's two premier stock exchanges remain closed on Saturday and Sunday.

Also, did Gadkari violate any Indian law by stating so in public when the company is yet to announce its annual result for the full year ending March 31, 2016?

Rediff.com spoke with two experts to find out. Rediff.com will not divulge the names of these experts because they were asked these questions without disclosing the name of the minister and the company in question and their response was based on just what a minister said about a particular government company.

Here's what the two experts said:

"Then you are making a forward looking statement, which is not wrong or inappropriate for a company's owner. After all, he is making this forward-looking statement in a public forum and this will ultimately benefit the shareholders of the company," the first expert said.

Echoing him, the other expert added, "According to me, he is not parting with any material information, but just giving guidance and the likely possibility of an event."

"However, one must also know that such forward-looking statements should not be made after a company enters the 'silent period'," the first expert said.

A 'silent period' is usually a two-week period before the day the results are announced and notified to the stock exchanges. "Normally, during the 'silent period' companies do not make any statements about their financial well-being," said the first expert.

However, the second expert added that the language used by the minister could have governance issues if it were made in the US, because the disclosure laws there also take into account the language and expressions used while making such statements.

"Fortunately, Indian laws do not prohibit, making such statements so long as the person doesn't divulge the actual or estimated figures," he said.

"As a good company, however, you should not make such statements during the silent period," the second expert concurred.

When asked if the company's stock price would be affected if the markets were to know about this minister's statement and the company's name, this expert said, "most definitely. The owner of the company is the government and if the government makes such a statement then that could definitely have a positive impact on the stock price."

However, he clarified that since the minister was not quantifying the profits it cannot be considered a malpractice.

"Just that it could be labelled as bad governance practice."

"If any information is shared with the public and the shareholders and if that results in benefit to the shareholder then it should be seen in that spirit," the second expert said.

Prasanna D Zore / Rediff.com
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