oppn parties Fortis Healthcare and Singh Bros: Whither Corporate Governance?

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Fortis Healthcare and Singh Bros: Whither Corporate Governance?

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
Although one case of misdemeanor (bordering on felony) cannot be cited to prove that the companies in India are run as personal fiefs of major shareholders, it can also be said that this one has come to light while other such cases might not have. Malvinder and Shivinder Singh, former executive chairman and vice-chairman respectively of healthcare major Fortis Healthcare Limited (they resigned just before the current matter was made public), have been found to have siphoned out Rs 473 crore of company funds for personal use. The matter came to light when the auditors of the company, Deloitte Haskins and Sells LLP refused to sign the second quarter results of the company till the money was accounted for and/or returned. The amount was shown as cash and cash equivalents in the books of the company.

Companies can undertake related party transactions after board approval but if the amount goes beyond a certain limit, shareholder approval is a must. But major shareholders of some companies in India are in the habit of treating the funds of publicly traded companies as their own despite there being proper checks and balances in the Companies Act and filing of various forms within time with the watchdog, Registrar of Companies. Short term lending is usually done on the sly to other companies in which the major shareholder is interested. Since these funds are returned within a few weeks or in the same quarter, not many questions are raised but this is an unhealthy policy that goes against the ethics of good corporate governance. The Singh brothers are already facing a similar case lodged by New York-based Sigular Guff & Co accusing them of siphoning money out of a publicly traded company. There are other cases of wrongdoing against them too in various companies they control. It seems they are habitual offenders.

But do a majority of Indian companies care for setting standards of corporate governance or even following the basic ethical standards followed worldwide or mandated by law? Checks and balances are kept in check by adopting ingenious accounting methods. Major shareholders in many companies use the funds of publicly traded companies to tide them over personal funding difficulties or those in other companies they control. This is an unethical and dangerous practice. The Registrar of Companies and SEBI should make an example of the Singh brothers by proceeding against them as per law and ensuring that the maximum penalty legally allowed is slapped on them. That will deter others from attempting similar (mis)adventures with public money in future. Both the bodies should also keep a strict watch on company filings on related party transactions.