Thursday, December 10, 2009

New law on the table in India to avoid corporate frauds like Satyam

Government has drafted a law to avoid the more corporate scandals like the massive fraud which embroiled outsourcing giant Satyam.


The measure would protect investors and make it binding for unscrupulous companies to pay damages to shareholders.  The new law will provide stricter penalties, greater disclosures, greater participation of shareholders in terms of scrutiny of company records. The legislation would also require "most importantly disbursement of any profits made by officers or the company at the expense of shareholders. 

It is pertinent to mention that the Satyam founder and chairman B Ramalinga Raju stunned India's financial world in January 2009 when he declared he had overstated profits for years and inflated the company's balance sheet. Federal police investigators said last month the Satyam fraud amounted to three billion dollars and that the figure was only likely to rise. 

Now govt. is taking considerable steps forwards so that the frauds like Satyam can be avoided.  An "early warning system" for shareholders is started to follow the scandal. The draft law, which also aims to allay fears of potential overseas investors will make it mandatory for companies to operate transparently. A major step taken by the govt is that providing for special possibilities of litigation where class actions (suits) will be permitted for the first time" in India. A class action is a lawsuit filed by one person on behalf of a group of individuals who each have the same complaint. The government has also set up a research unit to keep companies under watch. The bill is being examined by a parliamentary watchdog before it is put to vote.

Source: visited on 10 December 20.30 IST

Dr.Tabrez Ahmad,
Associate Professor of Law,
KIIT University, Bhubaneswar, India,
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