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Corporate Governance

SEBI Launches RPT Portal to Enhance Corporate Transparency and Governance

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The Securities and Exchange Board of India (SEBI) has launched a Related Party Transaction (RPT) portal to strengthen corporate governance and increase transparency in boardroom dealings. At the launch event, SEBI Whole Time Member Ashwani Bhatia likened the initiative to sunlight exposing hidden dealings, emphasizing its role in ensuring fair corporate transactions. RPTs, while capable of creating synergies, often face scrutiny due to unfair pricing and potential conflicts of interest. The portal will enable mutual funds and investors to track such transactions and demand better governance from companies. SEBI Chairperson Madhabi Puri Buch reaffirmed the regulator’s strong focus on RPTs, calling them a core governance concern. SEBI’s disclosure-based framework mandates that listed companies provide complete transparency in financial dealings to prevent unfair advantages. Looking ahead, SEBI plans to integrate supply chain data into the portal for a more comprehensive oversight of corporate transactions. The RPT portal is expected to boost investor confidence, reinforce corporate accountability, and ensure fair play in India’s financial markets. Source: CNBC

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SEBI Proposes Stricter Governance Norms for Listed Firms, Seeks Public Feedback

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The Securities and Exchange Board of India (SEBI) has issued a consultation paper seeking public feedback on proposed regulatory changes aimed at strengthening corporate governance in listed companies. The proposals focus on enhancing compliance requirements, tightening auditor eligibility norms, improving disclosure practices, and setting clearer rules for related party transactions (RPTs). The move is expected to improve transparency, reduce financial risks, and increase investor confidence in the market. SEBI has invited stakeholders to submit their feedback by February 28, 2025. Key Proposals and Their Impact: Strengthened Compliance Reporting: SEBI has proposed refining the Annual Secretarial Compliance Report (ASCR) to ensure clearer confirmations of compliance with securities laws. The proposal includes making ASCR a mandatory part of the annual report and streamlining exemptions related to corporate governance certifications and secretarial auditor reports. These changes aim to enhance accountability and ensure companies adhere strictly to regulatory guidelines. Tighter Auditor Eligibility Rules: To improve financial oversight, SEBI has recommended introducing eligibility criteria for appointing statutory auditors in accordance with the Companies (Audit and Auditors) Rules, 2014. The new criteria will ensure that auditors’ qualifications and experience align with the size, operations, and complexity of listed entities. Additionally, SEBI has proposed that companies disclose key details about the appointment or reappointment of statutory and secretarial auditors to the audit committee, board of directors, and shareholders. A standardized disclosure format is also being considered to further improve transparency. This is expected to enhance trust in financial reporting and strengthen enforcement mechanisms. Stricter Rules for Related Party Transactions (RPTs): SEBI has suggested introducing monetary thresholds for RPT approvals to ensure better scrutiny of transactions conducted by subsidiaries of listed companies. Under the new guidelines: For subsidiaries with an established financial history, the approval threshold will be the lower of 10% of turnover or a monetary limit—₹1,000 crore for main-board listed firms and ₹50 crore for SME-listed subsidiaries. For subsidiaries without a financial track record, the threshold will be 10% of standalone net worth, certified by a chartered accountant, or the prescribed monetary limits. In cases where subsidiaries have a negative net worth, share capital plus securities premium may be considered instead of 10% of net worth. These changes aim to bring consistency in financial disclosures and prevent possible misuse of related party transactions for financial manipulation. Why These Reforms Matter: With these proposed amendments, SEBI aims to enhance corporate accountability, protect investor interests, and create a more transparent and well-regulated financial ecosystem. The tightening of audit regulations will help mitigate financial risks, while clearer RPT rules will prevent conflicts of interest. As corporate governance standards evolve, these measures are expected to improve the overall trust in India’s financial markets. Investors, companies, and financial professionals are encouraged to review the proposals and provide their feedback before the deadline. Source: CNBCTV

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Adani Group Faces Corporate Governance Crisis; Fitch Places Key Stocks on ‘Watch Negative’

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The Adani Group is grappling with intensified corporate governance concerns following bribery charges against key executives of Adani Green Energy Limited (AGEL) by U.S. authorities. In response, Fitch Ratings placed Adani Energy Solutions Limited (AESL) and Adani Electricity Mumbai Limited (AEML) on a “Rating Watch Negative,” signaling a potential downgrade of their ‘BBB-‘ ratings. US Charges Spark Governance Concerns The allegations, tied to a 2021 offshore note offering, include bribery and misleading investors. With two accused executives linked to the Adani founding family, the controversy has amplified fears of systemic governance risks across the conglomerate. Fitch warned that any conviction or evidence of weak governance could significantly pressure ratings. Liquidity Remains Strong, But Risks Loom Fitch noted that AESL and AEML maintain robust liquidity, with AESL raising $1 billion via qualified institutions placement for near-term projects. AEML benefits from regulatory protections for operating costs. However, Fitch cautioned about increased reliance on onshore funding, which could elevate borrowing costs and refinancing risks in the medium term. Global Fallout The charges have drawn sharp reactions from international stakeholders. Total Energies has halted investments in Adani projects, and ESG rating agency Morningstar Sustainalytics is reviewing risks associated with Adani Green. Adani-linked dollar bonds, which initially plummeted, showed signs of stabilization but continue to face scrutiny. Future Challenges The indictment’s ripple effects extend beyond the group’s finances, potentially pressuring capital inflows and impacting India’s currency if funding risks persist. While the Adani Group has denied the allegations as “baseless” and pledged legal action, the conglomerate faces mounting global scrutiny. The coming weeks will test Adani’s ability to address governance issues and reassure investors, as reputational and financial challenges intensify. Source: Zeebiz Photo Credit: Zeebiz

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Moody’s to Review Adani Group’s Governance Following Bribery Allegations

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Global credit rating agency Moody’s has announced a governance review of the Adani Group following allegations of bribery against its chairman Gautam Adani and other senior officials. U.S. prosecutors have accused the billionaire and his associates of orchestrating a scheme to pay over $250 million (approximately ₹2,100 crore) in bribes to Indian officials for favorable solar power contract terms. Moody’s Ratings issued a statement describing the charges as “credit negative” for the group’s companies, signaling potential repercussions for the conglomerate’s financial health and investor confidence. “Our primary focus is on the group’s ability to access capital to meet liquidity requirements and its governance practices,” the agency said. The indictment has raised fresh concerns over corporate governance within the Adani Group, which operates across sectors such as ports, energy, and infrastructure. The alleged bribery scheme, if proven, could tarnish the group’s reputation and strain its relationship with global investors. The allegations add to the challenges facing the Adani Group, which has already been under intense scrutiny following the Hindenburg Research report earlier this year. The report accused the group of financial irregularities and stock manipulation, leading to significant market volatility and questioning of the group’s governance standards. The new bribery charges, involving high-level officials, pose further risks to the group’s operations and financial standing. Moody’s review will likely consider the impact on the group’s ability to secure funding and its adherence to governance protocols in light of these developments. This latest controversy underscores the increasing importance of robust corporate governance in maintaining credibility and stability in global markets. The Adani Group has yet to issue a detailed response to the charges. Source: telanganatoday Photo Credit: telanganatoday

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Italy Launches Probe into Sinochem’s Governance Role at Pirelli

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Italy’s Prime Minister’s Office has initiated an administrative review against Chinese state-owned Sinochem, the largest shareholder in Italian tire manufacturer Pirelli, over a potential governance breach. This move follows Italy’s use of its “Golden Power” legislation to safeguard strategic national assets by limiting Sinochem’s influence within Pirelli. Last year, Italy’s government set strict conditions requiring a qualified majority for key decisions at Pirelli and mandated that the company operate independently from Sinochem’s directives. The current investigation addresses whether there are any organizational or functional links between Pirelli and Sinochem that violate these terms. The review, dated October 31, has a 120-day timeline for resolution. Sinochem, which holds a 37% stake in Pirelli, has expressed confidence that it has complied with Italian regulations and plans to clarify its position during the proceedings. With Camfin, the vehicle of Italian executive vice chairman Marco Tronchetti Provera, holding a 25.7% stake, the probe highlights Italy’s commitment to shielding domestic companies from foreign state influence. Source: Reuters Photo Credit: Reuters

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Allegations of Irregularities in ISec Merger Deal Raise Concerns for Minority Shareholders

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A recent merger deal between ICICI Securities (ISec) and ICICI Bank has come under scrutiny, with Quantum Mutual Fund raising strong objections against the merger. The allegations, including flawed valuation reports, potential conflict of interest among directors, and fraudulent voting practices, raise concerns for retail and minority shareholders of ISec. Key Points: Potential Loss for Minority Shareholders: Retail and minority shareholders of ISec stand to lose approximately Rs1,776 crore in the merger deal with ICICI Bank, according to Quantum MF. The merger is deemed flawed and irregular, prompting objections from the fund. Flawed Valuation: Quantum MF alleges that the merger deal is based on outdated valuation reports, with ICICI Bank using a 9-month-old report to determine the share swap ratio. This outdated valuation fails to account for market changes and undervalues ISec, leading to potential losses for minority shareholders. Conflict of Interest: Concerns arise over potential conflicts of interest among ISec directors who hold shares in ICICI Bank. Despite these conflicts, directors voted in favor of the merger deal, raising questions about the fairness and transparency of the process. Fraudulent Practices: Quantum MF alleges that ICICI Bank used fraudulent means to secure favorable votes from minority shareholders, including contacting retail shareholders to influence their voting decisions. This conduct undermines the integrity of the voting process and prejudices ISec shareholders. Regulatory Concerns: Quantum MF has registered its opposition to the deal with SEBI and threatens further legal action. The allegations highlight regulatory concerns regarding transparency, fairness, and shareholder rights in corporate mergers. The allegations of irregularities in the ISec merger deal underscore the importance of transparent and fair corporate governance practices to protect the interests of minority shareholders. Regulatory scrutiny and potential legal action may be necessary to address these concerns and ensure a fair outcome for all stakeholders involved.

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India Inc’s Board Sizes Decrease Amid Heightened Governance Scrutiny

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Amid increasing scrutiny on governance issues, corporate boards in India are witnessing a reduction in size, according to a report by Excellence Enablers, backed by former SEBI Chairman M Damodaran. In fiscal years FY’18 and FY’19, the range of board members varied from 4 to 22. However, the maximum board size has contracted to 16 by FY23. The report underscores the importance of ensuring adequate board membership to effectively constitute mandatory board committees. With five required board committees, sufficient members are needed to prevent overlap among committee memberships. Highlighting the essence of good corporate governance, the report emphasizes the significance of voluntary adherence to governance best practices. Entities that proactively adopt governance measures often influence regulatory standards for the broader business community. Under the Companies Act, 2013, public companies must have a minimum of three directors, while private companies require at least two directors. The maximum limit for board size is fifteen directors. SEBI mandates that listed public companies appoint one-third of their board as independent directors, except for Public Sector Undertakings (PSUs). Additionally, if the chairperson is a non-executive director, one-third of the board must comprise independent directors. In cases where there’s no regular non-executive chairperson, at least half of the board should consist of independent directors. As of March-end 2023, six companies were found to be non-compliant with independent director norms. The report stresses the importance of maintaining a balanced mix of executive and non-executive directors on boards to leverage diverse perspectives and experience. It cautions against combining the roles of Chairman and MD/CEO, highlighting the potential conflict of interest and the adverse impact on corporate governance. Moreover, the report recommends making the appointment of a lead independent director mandatory for boards chaired by executives to ensure effective governance oversight.

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Delhi High Court Upholds Ban on Bloomberg’s Defamatory Article Against ZEE Entertainment

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Bloomberg India’s legal woes deepen as the Delhi High Court delivers a blow by dismissing its appeal against ZEE Entertainment Enterprises. Upholding the Sessions Court’s order from March 1, 2024, the High Court reaffirmed the injunction restraining Bloomberg from disseminating the allegedly defamatory article dated February 21, 2024, targeting ZEE Entertainment. Justice Shalinder Kaur, in her ruling, emphasized the existence of prima facie evidence supporting the necessity of an interim injunction, citing potential irreparable harm if the defamatory content remained unchecked. The court’s decision to dismiss Bloomberg’s appeal underscores the seriousness of the allegations and the need to protect ZEE Entertainment’s reputation from further harm. Furthermore, the High Court directed Bloomberg to adhere to the directives of the additional District Judge within three days, underscoring the urgency of compliance with the legal proceedings. ZEE Entertainment had filed a lawsuit in the Delhi Sessions Court, alleging that Bloomberg’s article contained false and misleading information aimed at tarnishing the company’s image. The Sessions Court had previously issued an interim ex-parte order on March 1, 2024, instructing Bloomberg to remove the contentious article from its platform within a week and refrain from publishing it on any medium, online or offline. ZEE Entertainment argued that the article’s inaccuracies regarding corporate governance and business operations had led to a significant decline in its share price, causing substantial losses for investors. With the Delhi High Court’s dismissal of Bloomberg’s appeal, the legal battle between the media giant and ZEE Entertainment intensifies, highlighting the importance of upholding journalistic integrity and corporate reputation in the digital age.  

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