KOLKATA, Aug 3: Securities and Exchange Board ofIndia (SEBI) on Saturday expressed concern over related partytransactions, a method “frequently” employed by corporates fordiversion of funds.The capital markets regulator also said another meansof such diversion was extension of loans.
“Related party transactions are being frequently usedfor diversion of funds by corporates. Another instance isextension of loans of companies to related parties. The listis endless. This really bothers the regulator”, SEBI’sExecutive Director Amarjeet Singh said.
Speaking at the Financial Market Conclave organised byCII here, he said these practices should be discontinued inthe interest of listed companies, promoters and relatedparties.Singh said fraudulent related party transactions werebeing used for “siphoning of funds”.Singh said that regarding corporate governance, therehad been a decline of trust for which SEBI had alreadyinitiated steps.”Serious corporate governance issues witnessed a linearrise causing a number of company failures.
Corporategovernance is aimed at keeping the trust of variousstakeholders. Learning from the global financial crisis, thiswas far from satisfactory”, Singh said.There had also been instances of non-disclosure ofvaluation reports, he said adding that the companies resortedto complex structures to hide risk for siphoning of funds.In this context, he said SEBI was enhancing monitoringof compliances along with the stock exchanges.”SEBI had prescribed standard operating procedures (SOP)for dealing with non-compliances, which can lead to freezingof shareholding of promoters and suspension of trading instocks”, he said.Singh said “the regulators can go upto a point. It wasincumbent upon the managements for sticking to compliance andkey management… professionals should show a strongindependence of mind to stand up to any wrongdoings”.(PTI)
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