Interview with Secretary, Ministry of Corporate Affairs
There is an interesting interview we came across and thought of sharing with our readers. Here it goes:
Shri. ANURAG GOEL, Secretary, Ministry of Corporate Affairs, talks about Satyam scandal and answers many other interesting questions.
The Satyam scam has thrown several questions and has brought the role of the Ministry of Corporate Affairs in the limelight. Your first reactions ?
What happened in Satyam was an unfortunate aberration. On January 7, 2009, Ramalinga Raju, the then Chairman of Satyam Computer Services Limited, made a statement about there being gross irregularities and manipulations in the accounts of Satyam, along with falsification of its financial statements for many years. The amount involved was stated to be more than Rs 7,000 crore. The Government reacted at a very swift pace and in a decisive manner. We immediately instituted an inquiry/investigation into the irregularities, falsification and the apparent fraud, to identify and punish the guilty as per law. At the same time, we initiated steps to ensure that the employees, customers and shareholders do not suffer.
What action did you take to protect the interests of the employees, customers and other stakeholders?
We decided that the erstwhile Board of Satyam needed to be replaced with a new one comprising eminent and globally renowned individuals from diverse disciplines.We got the necessary order from the Company Law Board on January 9, 2009 and the new Board was constituted two days later. Kiran Karnik, former president of NASSCOM, has been nominated as the Chairman, and the members include some of the renowned professionals from different fields. The Board has worked very closely with the customers, employees, financial institutions and other stakeholders to ensure continuity of operations and prepare a roadmap for the future. We were clear from the outset that we needed to do everything possible to ensure that Satyam did not go the Enron way. With the leadership provided by the new Board, commitment of the employees and the support of the customers, Satyam is still functioning, rendering top-quality service and will survive and prosper.
And the reasons for success so far?
Three factors I would say, namely, the immediate and effective response of the Government, within the statutory framework, under the stewardship of the Minister for Corporate affairs, Prem Chand Gupta; the quality, commitment and swift action of the Board Members who have put in unprecedented levels of personal effort; and the dedication and untiring work of the Satyam team.
Do you think Satyam will recover from this scam?
I have no doubt that, like the Phoenix, the company will rise and surpass its past glory. The quality, will and the determination of the employees, customers, shareholders, the new Board and the Government shall make this happen. The strategy is to stay focused. A clear roadmap is in place. In the process of achieving this goal, we hope to create a new global model for Government-Corporate-Stakeholder partnerships for managing the aftermath of such scams. The commitment and contribution of the key players and partnerships will, indeed, become a subject of reference for many future cases.
When and why was the Ministry of Corporate Affairs set up? What were your first steps?
It is the story of the Ministry reinventing itself. The Department of Company Affairs has been in existence for decades under several ministries like the Ministry of Industry, the Ministry of Law and Justice and the Ministry of Finance. It became an independent Ministry in 2004. The formation of the Ministry was itself in recognition of the fact that the fast changing business environment requires more intensive and focused attention in terms of the basic corporate law, framework and related services/activities. Once we started, our first priority was to provide the right legal framework for the functioning of companies. We looked at the Companies Act, 1956, the mother Act that governs the incorporation and functioning of companies. It is the biggest single Act in the country in terms of its size and has undergone 25 amendments so far. Keeping the need to bring the Act in tune with the emerging business environment, the JJ Irani Committee was set up in August, 2004, to come out with a new revised version of the Act. The committee submitted its report after going through a wide consultative process. The Bill was thereafter introduced in the Lok Sabha in December, 2008.
How has the journey been so far?
The journey so far has been extremely satisfying. In fact, I believe that as a Ministry we have been able to achieve a lot at an exceptional pace, under the visionary leadership of the Minister. We have been able to reinvent the Ministry with, what in my opinion, is a more generic model for governance.
What kind of governance initiatives have you taken up?
There are many ways of looking at governance issues and many models are available. What we have used is a concept in which we see our role in three major parts. First, the Ministry needs to provide an efficient corporate law structure for incorporation and functioning of companies and other corporate entities along with appropriate policy framework and prescriptions. Second, we need to build appropriate institutions, delivery mechanisms and systems for regulation, enforcement and service delivery. Third, we need to build the people working in the system to be able to regulate and serve effectively. In brief, we see our role as that of building laws, institutions and people. Even more importantly, while doing so, we must be extremely sensitive and focused on the needs and aspirations of the entities and persons who are to benefit from our efforts.
You talked of reinventing the Ministry. How has this been done?
As I mentioned earlier, in 2004, we started looking at the corporate laws in the context of modern business environment and requirements. In March 2006, we amended the Acts governing the professionals — Chartered Accountants, Company Secretaries and Cost and Works Accountants. These professionals provide the backbone for the corporate governance of any company. The amendments helped create an internal structure in the three institutes, making the professionals more accountable. Accounting standards were notified in December, 2006. The Limited Liability Partnership Act, 2008, has been enacted.
Building institutions have also been taken up. The Competition Commission of India (CCI) is being established and operationalised to ensure smooth free and fair competition in the functioning of the business sector. We have also established the National Foundation for Corporate Governance (NFCG) as an apex national body to promote good and responsible corporate governance practices. The Investor Education and Protection Fund (IEPF) has been established to promote investor awareness. This was further followed by creating and setting up the Indian Institute of Corporate Affairs (IICA) which would act as a think-tank, action research, service delivery and capacity-building institute to serve the Ministry, corporates and all other stakeholders in a one-stop-shop mode.
Simultaneously, we have tried to upscale the capacity of our officials, professionals and so on through a series of HR initiatives. The erstwhile Indian Company Law Service has been rebuilt and renamed as the Indian Corporate Law Service. Action has been taken for empowering investors, building stakeholders’ capacity and catalysing entrepreneurs/ innovators.
The Ministry had introduced the concept of LLP. What is the progress on that front?
The LLP is a corporate structure that is available in many other countries. You see, we have the company structure that provides limited liability but comes with a relatively complex framework of compliances because of the public interest factor. Another form is the partnership, which does not entail compliance requirements like filing of annual returns or balance sheet. The corporate governance and management aspect is not regulated either, so you govern yourself. What was missing in India was a structure that allowed flexibility of partnerships with a limited liability aspect. We started towards creating this new structure and it received the President’s assent on January 7, 2009. This new corporate structure is available as a result of “building law” efforts of the Ministry and is expected to be operationalised by April, 2009.
Regulating more than 800,000 companies must be a huge effort for the Ministry?
I would like to divide that into two parts. First, we have struck off about 1,40,000 companies which are dormant and it’s a continuing exercise. The second part has been to put in place efficient reporting, monitoring, feedback and evaluation systems to ensure effective regulation and focus on companies that involve a higher level of public interest. And, of course, MCA-21 has helped tremendously.
MCA 21 e-Governance project has been one of the most remarkable achievements of the Ministry that has revolutionised the Government-to-Business transactions. This e-governance effort has also received international recognition as being a pathbreaking initiative. What do you think is the single most important achievement of the MCA 21 project and how do you see it shaping up for future requirements?
MCA 21 has indeed brought about a revolution in the way the Ministry transacts its business and extends the services to its clients. In one stroke, the entire business process of the office of Registrar of Companies, which included incorporation of companies, filing of various compliances under the Companies Act have been made available through a secured online system. This has substantially reduced the compliance cost as well as the compliance effort. The most striking feature of MCA 21 is the in-built scalability to add more and more G-to-B services on the same platform. The Ministry is already working fast towards the Next Generation MCA 21 which will expand the scope of G-to-B services and also create enriched corporate databases for various users.
The Ministry regulates the functioning of Chartered Accounts, Company Secretaries and Cost and Work Accountants. How do Accounting Technicians, the new category of professionals introduced by the MCA, fit into this scenario?
Accounting Technicians are being developed as an intermediate stage for final professional qualifications of CAs and Cost and Work Accountants. The former would meet a strong felt need for accounting professionals required by a huge number of small and medium enterprises. Even the corporates require people with basic financial and accounting skills below the level of Chartered Accountants and Costs and Works Accountants, and can use the services of Accounting Technicians. It will provide employment to a large number of educated young people, make them professionally qualified and improve the compliance management under various statutes.
Does the Ministry have the human resources to meet the new global challenges? What is the Indian Institute of Corporate Affairs (IICA) supposed to achieve?
We have the Registrars of Companies (RoC) and the Official Liquidators (OLs). We realised that unless these institutions and people are reorganised, a transformation in quality and outcomes would not be possible. We started working towards it, and with our MCA 21 programme, we have revolutionized the way RoC functions. We have started computerization of records of Official Liquidators offices. Our next step would be to go for e-Governance in the Official Liquidator’s offices. We also felt a need to create an institutional structure to be a quality think-tank, which also has the ability to deliver. We started the process of setting up the Indian Institute of Corporate Affairs (IICA), which has now been registered and is functional. In terms of concept, design and functioning, it is unique. The IICA has partnerships with IIT Kharagpur, the George Washington University (Law School), Washington DC, USA and the Evian Group IMD, Lausanne, Switzerland and the Carnegie Mellon University, USA. On the corporate side, we have a partnership with Intel. These initiatives incorporate the vision of building institutions and people aspect of MCA.
How has the Ministry upgraded its own human resource?
We started with changing the way people were recruited under the Indian Company Law Service to which the RoCs and OLs belong. After changing the name to Indian Corporate Law Service (ICLS), we have got it incorporated as an allied service in the Civil Services Examination conducted by the UPSC. Our effort is to ensure that those who clear the ICLS develop a common identity of their own and capacity to play a larger role. In addition, we are upgrading offices which will now be called Corporate Bhavans, and will have the office of RoC, Official Liquidator and National Company Law Tribunal (NCLT), all in a single integrated modern office complex.
The Serious Fraud Investigation Office (SFIO) is investigating the Satyam fraud. Does it have the required manpower to deal with cases of corporate frauds of this magnitude?
SFIO is a multi-disciplinary body with experts from IT, police, taxation, audit and SEBI trained to investigate corporate fraud. A committee has been set up to recommend measures to make SFIO more effective. The report will come in a month or two. After the Satyam case surfaced, it was also felt that there is an urgent need to strengthen the SFIO. At the moment we have people on temporary deputation. To strengthen it further, we have created 58 more posts.
What about having a system of early warnings and alerts for preventing corporate frauds?
We certainly need the early warning system and have been working in this direction. The next generation MCA 21 system will have a huge database regarding corporates and very sophisticated analytical tools. Once the XBRL system is introduced over the next few years, we will evolve a system which will start ringing the bell in cases of potential frauds much earlier than it does now.
The corporate sector is the key driver for economic growth in India. Don’t you think that the Ministry can play a larger role beyond regulation of companies and contribute to economic growth?
Yes. In fact, we see corporates as a major vehicle of economic growth and promoting/facilitating effective corporate functioning is an intrinsic part of our vision. Good corporate governance practices are in the long-term interest of the company as well as the investors. I find that the concept of Corporate Social Responsibility (CSR) has grown significantly in the last two-three years and is becoming almost synonymous with the idea of inclusive growth, for which the Government and corporates should partner. Indeed, the Indian Institute of Corporate Affairs would take this as one of its major thrust areas.
What are the future challenges for the Ministry?
This is an interesting question. We have achieved so much in so little time but we all feel that we have miles to go before we rest. We have to concentrate on the new Companies Bill and work towards its enactment at an early date. We also need to go to the next-generation MCA-21, that involves the possible creation of a single Regulators-to-Business portal and the use of Extensible Business Reading Language (XBRL). These will furnish a vast amount of information and give advance warning against potential frauds and scams. We are already working in this direction. We need to focus on the small and medium enterprises, identify opportunities in the evolving business scenario and help them to act quickly and capitalise on the early mover advantage. We need to ensure convergence with the International Financial Reporting Standards (IFRS) by April, 2011. And, of course, we need to carry on and build on the initiatives undertaken so far.
Finally, how would you sum up the present Ministry of Corporate Affairs?
I would say it is a Ministry with visionary leadership and a great team, which has reinvented itself and redefined the basic framework for corporate functioning and investor protection for the 21st century business environment.