One has heard of the India-Bharat divide, a euphemism for the urban-rural divide. But with India fast globalising, there is another divide in evidence — foreigners guarding their turf assiduously even when we are lax in guarding our own.

L'affaire Satyam Computers highlights how anaemic our Company Law is vis-à-vis the American law.

Why ADRs not favoured

Satyam's discredited promoter Mr Ramalinga Raju must be ruing his decision to go for an issue of American Depository Receipts (ADRs) instead of the more tried and trusted Global Depository Receipts (GDRs). It is common knowledge that from out of around 175 Indian companies that have hit the foreign markets with equity issues, only a handful of them have chosen the American market. The strict and no-nonsense American regulations are the primary reason for this marked preference.

Indian companies wooing American public have had the mortification of their financial statements ripped apart and almost rewritten and re-audited, besides being subjected to other rigours, none of which hamstring or confront them at locations such as Luxemburg, the place where most of India's GDRs are listed.

Satyam Computers was and still is an Indian company, but with a sizeable American shareholding through the ADR route. Small wonder, the epicenter of the Satyam explosion that rocked the equity world more than two years ago was the US, and not India.

Had it not been for their vigilance, Mr Raju perhaps might have continued to pull the wool over the eyes of everyone for a few more years, if not in perpetuity. Systematic forgery of invoices to inflate turnover by a $1 billion necessitating forgery of bank deposit receipts, all with a view to worming into the hearts of the rather finicky foreign investors was a fraud that should have been the investigators' delight - an open and shut case. That the Indian investigators are still at their wits' end even as the American regulators have brought finality to the issue is amazing, to say the least.

The Indian affiliates of Pricewaterhouse Coopers have had the mortification of being admonished by the American PCAOB (Public Companies Accounting Oversight Board). The penalty of $ 1.5 million imposed by it might not rankle as much as the punishment a schoolboy may bristle at — go back to the drawing boards. The SEC has also slapped a hefty penalty bill of $6 million in what it calls the highest penalty on a foreign auditing firm for its misdemeanours.

A chastened PwC has agreed to take all these penalties in its stride and the new owners of Satyam Computers, the Mahindras, have also agreed to settle the class suit by American investors for $10 million. All in all, a very heavy penalty extracted from the Indian system for trifling with American interests.

Nothing wrong except that in juxtaposition, the inadequacies of our laws hit one on the face. Section 233 of the Companies Act, 1956 imposes a penalty of Rs 10,000 for negligent signing of audit report.

Of course, there is an omnibus or residuary Section 629A which imposes a maximum penalty of Rs 5,000 in addition to Rs 500 per day for continuing offences. Small wonder, Indian laws are pilloried as dinosaurs and one hopes the new Company Law in the anvil puts the fear of God on those running companies and overseeing them.

Otherwise we may have to be content with, and rejoice at the actions, taken by foreigners each time there is a shenanigan with Indian roots, but whose echoes reverberate elsewhere.

(The author is a Delhi-based chartered accountant.)

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