Amid the various perspectives emerging on start-up ecosystem and its inherent vulnerabilities, following the fiasco involving edtech major Byju’s, a strong recommendation has come from former SEBI Chairman Ajay Tyagi, who said that the MCA should step into the scene to put in place an institutionalised review mechanism on corporate governance compliances of certain mature start-ups.

The Ministry of Corporate Affairs (MCA) should come up with a policy to analyse and review the corporate governance practices of mature start-ups in which the valuation has grown high or the turnover has increased beyond a level or there are plans to launch an IPO, Tyagi told businessLine here on the sidelines of Start-ups Corporate Governance Conclave.

This has to be done by MCA and SEBI cannot do this, Tyagi said. SEBI can make interventions only at the time of listing, he added.

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In contrast

Tyagi’s remarks are in sharp contrast to G20 Sherpa Amitabh Kant’s advise in his address at the same conclave that rather than regulation, India must adopt a robust system of self-governance if it wants to have a vibrant and energetic start-up ecosystem.

Tyagi also advised mature start-ups that are thinking in terms of going public for IPO to adopt corporate governance practices specified for listed companies well in advance. “Mature start-ups should do this three years ahead of their listing and not six months before their IPO. They should publicise it at the time of going public that they have been following it for last three years. That requirement should come from a regulatory mandate for unlisted Cos, which MCA alone is equipped to do”, he added.

Private companies including start-ups which wish to go public should put structures and mechanisms in place. “It should not be that six months before listing you should say let me have  board of directors, NRC, Audit Committee. I would suggest that few years before you want to go public, you should get used to these structures. I am talking of start-ups in maturity stage . These structures will entail cost, but will give confidence to investors when entity goes public”, he said.

It is not something that is tick the box and hurriedly achieved -- that will be counter productive, Tyagi added.

The former SEBI chief said that most of practices prescribed for listed companies apply equally well to private companies.

Transparency and ethical process is good for everyone to follow. To have an audit of financial statements is required for private companies and will benefit them in the long run, he added.

Post Covid, the DNA of Indian capital market has changed. The number of demat accounts have surged in the last two to three years. Any corporate scandal that comes to the fore can jeopardise participation of retail investors in capital markets, he warned.

He also said that corporate governance framework for listed companies has developed rather well and has been constantly reviewed from time to time over the last three decades.

Bold move

Tyagi also noted that it was a bold move on part of SEBI to allow loss -making companies to list in India and this should be continued.

Former SEBI chief highlighted that credible valuation with objectivity and justification is extremely important to keep investors faith in the startup eco system. “They (investors) should not be blaming issuers and merchant bankers”, he said.

Tyagi also called for relook on the restriction of Offer for sale (OFS) of Private Equity, Venture Capital and promoters. “From perspective of investors’ interest, that needs to be slightly tightened”, he added.

Tyagi said it is extremely important for start-ups to improve corporate governance practices. This is needed to maintain credibility and for India’s aspiration to become a start-up nation to become a reality.

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