The Securities and Exchange Board of India (Sebi) on Saturday expressed concern over the use of related-party transactions by companies to divert funds and other corporate governance lapses.
The market regulator has stepped up its vigil and is considering strict measures to deal with such violations.
“Sebi had prescribed standard operating procedures to deal with non-compliances, which can lead to freezing of shareholding of promoters and suspension of trading in stocks,” Sebi’s executive director Amarjeet Singh said.
“However, the regulators can go up to a point. It was incumbent upon the managements to stick to compliance and professionals should show strong independence of mind to stand up to any wrongdoing.”
“Related-party transactions are being frequently used for diversion of funds by corporates. Another instance is extension of loans of companies to related parties. The list is endless. This really bothers the regulator,” Singh added.
At the Financial Market Conclave organised by the CII here, Singh said these practices should be discontinued in the interest of listed companies, promoters and related parties.
Fraudulent related-party transactions were being used to “siphon funds”, he said.
On corporate governance, Singh said there was a trust deficit for which Sebi had already initiated steps.
“Serious corporate governance issues witnessed a linear rise causing a number of company failures. Corporate governance is aimed at keeping the trust of various stakeholders. Learning from the global financial crisis, this was far from satisfactory,” Singh said.
There have also been instances of non-disclosure of valuation reports, he said, adding that the companies resorted to complex structures to hide siphoning of funds. Sebi, along with the bourses, is monitoring these issues.