For the longest time, many official-looking cars in India — peculiarly, mostly white Ambassadors — were seen with a strange looking rectangular board affixed to its front and rear bumpers. With a large gold embossed Lion capital national emblem, the lettering on the board would read “GOVERNMENT OF INDIA” in large and bold font. Followed by a sotto voce “(undertaking)” in smallcase, tucked away discreetly below it. Any common observer would be forgiven for identifying the occupant of the vehicle as a grand panjandrum in bureaucrat-and-politician ruled India and hasten to make way, even as the lower officialdom would salute obsequiously while according VIP status and clearing the way for its passage without hindrance.

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There was, of course, no official sanction to this. But the Lal Batti culture had become so rampant, with babus of all varieties and at all levels keen to have public symbols of “official” power, that the Government of India under Prime Minister Modi had to introduce a ban on Lal Battis by amending the Motor Vehicles Act, in 2017, limiting its use to only emergency vehicles and high dignitaries of state. The rectangular boards, insidiously misleading and outside the domain of official sanction, however continue to be seen.

This attempt by public sector companies (calling themselves “undertakings” rather than acknowledge their corporate existence), and those associated with it, to mimic and climb on to the “perceived-to-be-government” bandwagon had obvious reasons. In an “us” of the protected, unquestioned, and administratively unaccountable Babu Raja, and “them” of the pesky, commoner, standing-in-line Public Praja that included the lower life form of “companies”, the desire to climb this officialdom ladder of public importance and impunity was understandable, if not official.

However, while the official Lal Batti from atop cars may have been abolished, the culture epitomised by these rectangular boards lives on.

Many formerly public sector companies, and their subsidiaries, continue to project themselves as part of some sort of “officialdom”, under patronage of bureaucrats of controlling ministries, even after they have listed on public stock exchanges and equity holding by the government — directly or indirectly through state owned enterprises — has fallen below the 51 percent threshold level of the Supreme Court defined classification of a Public Sector company.

This conveniently ambiguous “Dhruv tara” between-heaven-and-earth existence permits them the advantageous dichotomy of shifting between being “public” and “private” at will, arguing for a protection impunity of the public sector while following practices - and compensation structures - of the private sector. And being accountable under neither.

The latest case in point is PTC (formerly Power Trading Corporation of India) and its subsidiary, PTC Financial Services (both listed). PTC Financial Services (PTC Financial) is in the news as all three Independent Directors on its board have resigned, making serious allegations against the management in respect of governance lapses of the company. These directors, all former heads of public sector institutions with many years of experience in the field and at board level positions, have also written — inter alia — to the Ministry of Company Affairs, Reserve Bank of India and Securities and Exchange Board of India with specific details and correspondence undertaken.

A widely held public perception of PTC (and its group companies), is being an “affiliate” of the Government of India. Its website boasts of its establishment in 1999 as a “Government of India initiated Public-Private Partnership”. Its identified promoters are NTPC, Power Grid Corporation of India, Power Finance Corporation, Damodar Valley Corporation, and Life Insurance Corporation — all state owned entities.

For the common observer, like the rectangular board on white Ambassadors, PTC is a part of the government-public sector administrative complex. Further, its subsidiary PTC Financial, in its communication to the Stock Exchanges states “We refute the allegations by the outgoing directors, which were due to our adherence to best corporate governance practices under guidance of promoter, regulator and Government of India.” (“Guidance”, as per the Cambridge dictionary, is “help and advice about how to do something or about how to deal with problems”, perhaps suggesting a higher “guidance” authority than its board?).

PTC Financial however, has unfortunately not shared specific details of this “guidance” by its promoter PTC, the regulator and Government of India, devoted adherence to which has apparently caused its outgoing directors to make these allegations. It is, however, worthwhile to parse the corporate governance role of each of these individually.

The “promoters” of PTC — the state owned companies referred to above — own just 16.2 percent of its equity capital. In contrast, the state owned/controlled ownership in ITC Ltd is 23.3 percent and nearly 21 percent in L&T. In such a scenario, PTC Financial — a listed firm — claiming “guidance” from its promoter PTC as against its own duly elected board of directors is about as tenable as say, United Breweries management taking direct instructions from its promoter Vijay Mallya than from its duly constituted and shareholder-elected board. In fact, it undercuts the very root and premise of what is commonly understood as corporate governance.

As for “guidance'' from the regulator and Government of India, there are nearly 7,500 companies listed on NSE/BSE exchanges alone. It is highly unlikely that either the regulator or Government of India, which generally lay out the general principles, rules, and penalties, would give any company such “guidance” that prima facie negates the shareholders-board of directors-management structure of corporate governance.

Which again raises the question of the lal batti/rectangular board. This entire business of being a private, corporate, listed company in form and action, but claiming privilege as part of a bureaucratic-government administrative complex must end. Either a company is a PSU as per the Supreme Court definition and accountable to the government and Parliament in its oversight framework. Or it is not, and is accountable to the markets and regulatory forces as any other ordinary company. There is no scope for an unaccountable-to-either pick and choose its existence as per convenience. And if the government believes any company to be a part of its public policy, it needs to either make it a PSU or make an explicit statement to that effect so that markets, regulators and the common person on the street knows the nature of the entity they are dealing with.

That listed PSUs rank poorly on most corporate governance indices, and often continue to serve as unaccountable fiefdoms of bureaucratic ministries, is a fact. That non PSUs may masquerade similarly would be a travesty.

Which raises the matter of the framework within which these allegations can be investigated. Unfortunately, there is no precedence to this situation. Without commenting on the merits of the allegations, clearly, PTC/PTC Financial cannot investigate and sit in judgment in their own cause. Investigation by a reputed panel/firm under the aegis of the Securities and Exchange Board of India /and Reserve Bank of India are clearly warranted, and under the supervision of the Ministry of Company Affairs, in a time bound and transparent manner.

While PTC/PTC Financial may not be particularly large in themselves, it is an important test case for the government — which has significant divestments/IPOs lined up, including LIC — to use the opportunity to answer the question uppermost on everybody’s mind. What, exactly, is the corporate governance structure and status of listed/former PSUs/their affiliates and are there any privileges conferred on them that are not available to other similarly incorporated and listed entities? Or is sauce for the goose also sauce for the gander?

It is time that the government, much like its actions regarding the lal batti, abolishes unaccountable and unentitled privileges conferred by the unauthorised rectangular board too.

—Sandeep Hasurkar is an ex-investment banker, and author of Never Too Big to Fail: The Collapse of IL&FS and its trillion rupee maze. The views expressed in the article are his own.

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(Edited by : Ajay Vaishnav)

First Published:Jan 21, 2022 4:23 PM IST