Welcoming the Supreme Court order instituting a high-level committee to look into the Adani-Hindenburg row, economist and IMF Executie Director KV Subramanian hoped the decision pushes India in the right direction of corporate governance.

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In an exclusive interaction with CNBC-TV18, Subramanian stressed that the quality of disclosures on related party transactions in India needs to improve significantly, since a significant chunk of Indian economic activity was mainly driven by family-owned enterprises.

“Supreme Court (SC) order on the Adani saga is a good and important development because it will push India in the right direction, especially on some of the governance aspects,” he said.

It would be a big positive if the Adani episode leads to better disclosures of related party transactions, he said, adding that this would bring transparency to shareholding patterns, common directors, shared managements, and make it easier for identification of related parties and thus bring in better governance.

The Supreme Court had earlier in the day constituted a six-member panel to look into regulatory issues in stock markets following the rout of Adani group companies after US-based Hindenburg Research report accused the group of accounting fraud, stock manipulation and money laundering through offshore businesses. The panel will be headed by retired SC judge Justice AM Sapre, and have OP Bhatt, KV Kamath, Nandan Nilekani, JP Devadhar and Somasekhar Sundaresan.

The court has also asked markets regulator SEBI to complete its ongoing investigation in two months and file a status report.

Recalling his time with the Uday Kotak Corporate Governance Committee which had looked at the disclosure of Related Party Transactions (RPTs) among NSE500 entities, the former CEA to government of India said they found only one third of the parties gave correct disclosures on related party transactions.

" We also found that only one third of the transactions were disclosed by both parties and the amounts were right. In one third of the cases, one of the parties did not disclose it and in another one third of the cases, the amounts were wrong. So overall the quality of disclosure of related party transactions needs to improve significantly," he said.

Subramanian stressed the need for auditors to act on this account.

“I will put the onus for related party transaction disclosures on auditors. I think NFRA needs to really get its act together. At the same time ICAI also needs to bring their act together; there cannot be a setup where they end up looking the other way on some of the poor quality disclosures. Financial statements are the first line of defence for any investor and the onus is on instructions like ICAI and NFRA together with SEBI. SEBI also has to tighten on related party disclosures.”

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Adani-Hindenburg Case: SC appoints six-member committee headed by Justice Sapre

(Edited by : Pradeep John)

First Published:Mar 2, 2023 9:15 PM IST