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Nov 13, 2017 03:41 PM IST | Source: Moneycontrol.com

SEBI may get a chance to oversee unlisted subsidiaries of listed companies

The government may allow certain sections of SEBI regulations to be amended so as to give it powers over unlisted subsidiaries of listed companies.

Tarun Sharma @talktotarun

The Ministry of Corporate Affairs (MCA) may give some leeway to the Securities and Exchange Board of India (SEBI) to regulate unlisted subsidiaries of listed companies. At present, all unlisted companies are outside the purview of SEBI.

“We are ready to vacate some space to SEBI to ensure better corporate governance by listed companies and protection of investor interests,” a senior official at MCA told Moneycontrol.

For this, the government may allow certain sections of SEBI regulations to be amended so as to give it powers over unlisted subsidiaries of listed companies.

Last month a Sebi panel led by Uday Kotak on corporate governance reforms had suggested it wouldn’t be in the interests of the MCA to hand over even partial oversight to Sebi on unlisted subsidiaries. In a clear indication that the Ministry was opposed to let go of its powers, its report said any such move would be deemed an ‘encroachment into the unlisted space which is regulated by the MCA.”

In speaking to Moneycontrol on the sidelines of an investors summit, Kotak mentioned that he wasn’t sure whether the government will give SEBI a chance to regulate unlisted subsidiaries of listed companies. “In many cases, the businesses of the subsidiaries account for 70-90 percent of the consolidated business of the related listed companies”.

Businesses use unlisted companies for diverting funds often with the intent of evading taxes. Cases where the unlisted companies are used as conduits to funnel illegal money are harder to catch, tells a senior investigation officer in an interview to Moneycontrol.

Another major cause of worry is the definition of insider-trading as understood by different regulatory bodies. Under the Companies Act, for example, insider trading is defined as an act which involves buying, selling or dealing in any securities of a company by a key management person who has prior knowledge of the stock price movement.

Experts Moneycontrol spoke to believe that this definition falls short of SEBI’s more detailed explanation of what constitutes insider trading. The government should step in and clear ambiguity, if any, between the different versions of SEBI and the Companies Act, say these experts.

If MCA does cede ground to SEBI on the critical issue of regulating unlisted companies, then any such guidelines will have to be formed keeping international standards in mind, tells a source to Moneycontrol.
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