My friend, who is a regular reader of my blog, having read my brother’s blog as well, told me that writing is probably  in our genes.

I was thinking about it today.  I think my friend is right. Most people who have some creativity should be having it in their genes.  Writing is also one of the creative skills.

Looking back at the history of my family, I found that at least two of my ancestors had a history of writing.

My maternal grand father was a sub-editor of the highly respected Tamil newspaper of  yesteryears, Swadesamitran.  My grand father V.V. Narasimhan, had worked with Sandilyan, the famous author of historical novels such as Yavana Rani, Kadal Pura etc. during his tenure with Swadesamitran before he died in  at the age of 35  in the year 1950.  I have seen old magazine cuttings in my house that had his stories written in his nick name “Kesari” (none of them available now ).  I have heard from my grandmother and my mother that he was a very good writer.

Next to my grandfather, my paternal uncle, who is also no more, used to write poetry and stories and even tried to make it to the tinsel world as a song writer.  My mother tells me that he had met Kavignar Vaali several times and probably enjoyed a decent friendship with him during the 60s.  He died of electric shock in 1967. I was just two years old then.

My father and his brothers were very good in drawing and crafts but could not extend their creativity either due to responsibilities towards family.

I started writing around the age of 16, the age in which most people start writing “kavithai” (poetry) looking at the world with new and different view point, as an adolescent.  My first poem was published in “Dinamalar” in the year 1982 and I even got Rs.15 from the magazine for that poem.  To make that event memorable, I ran to a book shop and bought with that money, “Your First Move”, an excellent book on Chess.

My writing continued till I was in college.  After I took up CA, I almost stopped writing anything other than audit reports (they were separate stories in their own right!).

In the period between 1984 t0 2005, if I wrote something interesting it was in the form of letters to my family and if it was something romantic it was to my would-be wife.

Other than that there was nothing of note that I wrote in that 15 year period.

In making the above statement I have discounted as writing, 1000s of emails I wrote as part of my official duties and as part of keeping up contacts with my friends.  If you work somewhere, you will know that such emails always have good imagination as one explain to the bosses why or why not something was done or not done.

Late 2005, I started blogging .  Since then I have been almost regularly writing.  My writing spread to my youngest brother who also started to blog around 2006. He is now writing tamil posts revealing his super writing skills hitherto invisible to all of us in the family.   One of my other three brothers is very good in mimicry (he mimics friends and relatives extremely well) and the other two are writing comments to blog posts

Not to be left behind my eldest son Niranjan showed his creative self and wrote two poems when he was in school and then wrote a Harry Potter fan fiction.   My second son Anand Surya is also creative.  He is interested in doing animations and has done some nice animations in power point.  Some of his flash animations can be seen here.

Now it seems the creativity is spreading to my youngest son Akshay, who is just four years old.  He doesn’t know how to write but seems to be aware that a picture can speak thousand words.  So, he wrote 28000 words today as can be seen in the picture below.

I have serially numbered each 1000 words written by him and leaving you to figure(!) out what they convey.  For those who need help it will be at hand in my next post

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PWC has written the following letter to BSE and addressed to Satyam’s Board.  The text of the letter published at www.cxotoday.com is reproduced below with my questions, presented in blue font.

Dear Sirs,

Re:      Our audit of your financial statements

1. As statutory auditors, we performed audits of Satyam Computer Services Limited (the “Company”) from the quarter ended June 2000 until the quarter ended September 30, 2008 (“Audit Period”).

Q. What was the fee earned during this period from Satyam for audit services and other consulting services?

2.The above-referred financial statements were prepared by the management of the Company.

Q. Agreed that the financial statements were prepared by the management of the Company. Was it not audited by you?

Q. Can you prove that no part of the financial statements were made / amended at your office including the notes to the accounts?  Were the notes on accounts verbatim drafted by Satyam’s management?  Is it possible that some part of the financial statement or notes to the financial statement were amended to meet the changes in the Indian Accounting Standards (IAS) and International Financial Reporting Standards (IFRS)?

If it is not the case, how certain notes to the financial statements of Satyam is verbatim matching with other financial statements prepared by other companies which are also audited by PWC?

3. We planned and performed the required audit procedures on such financial statements, and examined the books and records of the Company produced before us by the Company management.   We placed reliance on management controls over financial reporting, and the information and explanations provided by the management, as also the verbal and written representations made to us during the course of our audits.

Q. When you say “required audit procedures” how the required audit procedures are determined? Who is responsible to decide what is “required audit procedures”?

Q. Is there a possibility to err in judgment when finalizing “required audit procedures”?

Q. Is there a possibility to totally ignore certain aspects of a business when deciding “required audit procedures”?

Q. Is there a possibility to follow the same audit procedure year after year for checking certain things without suitably amending the “required audit procedures” and thereby ignore significant changes in accounting / control systems?

Q. Before placing “reliance on management controls over financial reporting, and the information and explanations provided by the management, as also the verbal and written representations made during the course of our audits”, did you undertake any “required audit procedure” to satisfy yourself the amount of reliance that can be placed on the management controls, information and explanations as also the verbal and written representations?

Q. What were the “required procedures” adopted by you to satisfy yourself on the issues highlighted in the previous question?

Q. Were there any, significant or insignificant, anomalies/ shortcoming found in the controls, information and explanations provided as also the verbal and written representations?

Q. How were these resolved?  Were there any unresolved issues? Were there any unresolved issues pending for many years?

Q. What about the various statements you have given under MAOCARO (Manufacturing And Other Companies Auditors’ Report Order) wherein you have expressed satisfaction over “internal controls in effect in the company”, “no knowledge of fraud” etc.?  What tests were performed to assure yourself that you can rely on the management’s views on these?

Q. Were you and your Satyam audit team, conscious all the time, of the fact that you were representing the shareholders?

4. As you are aware, vide a letter dated January 7, 2009 {“Chairman’s Letter”) addressed to the erstwhile Board of Directors of the Company, the former Chairman of the Company, Mr. Ramalinga Raju has stated that the financial  statements of the Company have been inaccurate for successive years.  The contents of the said letter, even if partially accurate, may have a material effect (which effect is currently unknown and cannot be quantified without a thorough investigation) on the veracity of the Company’s financial statements presented to us during the Audit Period. Consequently, our opinions on the financial statements may be rendered inaccurate and unreliable, a copy of the Chairman’s Letter, extracted from the official website of the National Stock Exchange is annexed hereto as Annexure A, for the sake of record.

Q. What are the letters written by the Auditors to, namely, Audit Committee, Board of Directors on the financial statements at the end of each audit and whether any of such letters pointed out any concern related to internal controls, insufficiency of information and explanations, unsatisfactory responses from management? Simply put, what were the contents of the management report / letter issued by the Auditors?

5. The ICAI has issued a guidance note on revision of audit reports in January 2003 (“Guidance Note”) which prescribes steps to be followed by the auditor to prevent reliance on audit reports in such circumstances.  In view of the contents of the letter our audit reports and opinions in relation to the financial statements for the Audit Period should no longer be relied upon.

Q. What are the various guidance notes and Statement on Standard Auditing Practices and Indian Accounting Standards  issued by the ICAI and applicable for auditing a Company like Satyam, including those related to Code of Conduct applicable for Chartered Accountants in practice.  Can the Auditors confirm that all of these were completely followed by them while conducting the audit and while forming a opinion on the financial statements?

6. Such a requirement is also prescribed under the generally accepted accounting standards in the United States, where, as you are aware, the American Depository Receipts of the Company are listed.   We wish to inform you that pursuant to Section 10A of the United States Securities and Exchange Act of 1934, the information contained in the Chairman’s Letter indicates that an illegal act could have occurred.  Accordingly, we advise that the Board of Directors of the Company should promptly commence an independent investigation pursuant to Section I0A of the United States Securities and Exchange Act of 1934 in order to determine whether such illegal acts occurred and, if so, the nature and extent of such acts,

Q. My question for point 5 is repeated for point 6 as well with suitable modification for GAAP in place of IAS and other India specific guidance notes.

7.  We hope to work with the Company and provide assistance to the new Board of Directors to address any issues that arise in the course oF such investigation, to enable both the Company and us as your statutory auditors to fulfill obligations under applicable law.

Q. Were you fulfilling all your obligations under all the applicable laws while doing the audit?

8. We wish to advise that the Company should promptly notify any person or entity that is known to be relying upon or is likely to rely upon our audit report that our audit opinion should no longer be retted upon.

Q. How does it matter if the opinion being withdrawn now relates to past years relying upon which decisions have already been taken and monies have already been lost or made?

9.  Consequently, such notification should be made to at least the Company’s shareholders, lenders, creditors, Indian regulatory authorities and the United States Securities and Exchange Commission, and indeed to all stock exchanges, whether in India or abroad, where the securities of the Company are listed.  We expect such notification would be made promptly and request that the Company advise us as soon as the notification has been made. Since we are required under the Guidance Note to mark a copy of this letter to the relevant regulatory authorities, we have done so.

Q. All stake holders are happy to receive your guidance as above.  Why no guidance was given to them at the end of each audit?  Were there no occasion in your entire audit history with Satyam for blowing this whistle?  How many times whistles were not blown because you made a judgement on MATERIALITY instead of IMPORTANCE?

These are questions asked in stakeholder’s interest.  Answering these questions will help us to put you back in the high esteem in which we are accustomed to seeing you.

http://www.sathyamurthy.com/2009/01/12/satyam-two-in-one/

http://www.sathyamurthy.com/2009/01/07/satyam-what-the-auditors-should-check-and-report/

http://www.sathyamurthy.com/2009/01/07/satyam-fraud-unravelling-the-mystery/

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If not, what will explain the confessions galore that we are witnessing now?  Mr. Raju must take the credit for opening the confession gate.

I d0 not know if it was by design or mere co-incidence that Mr. Raju came out with his confession on the sacred day called “Vaikunta Ekadesi” the day the heaven’s gates are believed to be opened for the general public by God Himself.  May be he consulted his astrologers before making the confession.  May be they advised him that if he did that on that day he might suffer the least damage.  Who knows?

Mr. Raju opened the gates and then the confessions started pouring in.  The CFO of the company followed suit as the environment didn’t suit him to hide.

Now, after keeping mum behind the “client confidentiality cloud” the auditors have come out in the open with their confession. Below is the report I saw on the Reuters website.

PWC says Satyam audit opinions may be unreliable

MUMBAI, Jan 14 (Reuters) – PricewaterhouseCoopers, the previous auditors at Satyam Computer Services (SATY.BO), said its opinions on the company’s financial statement may be rendered “inaccurate and unreliable”, given revelations of fraud by the founder of the outsourcuing firm.

The firm said Ramalinga Raju’s resignation letter, which included revelations of overstated profits, may have a material effect on the veracity of Satyam’s financial statements presented to it. It said it audited the firm from the quarter ended June 2000 to the quarter ended September 2008.

“Consequently, our opinions on the financial statements may be rendered inaccurate and unreliable,” the auditor said.

The Jan. 13 letter from Price Waterhouse to Satyam’s new board members and the company secretary was released by the stock exchange. (Reporting by Prashant Mehra)

My questions:

1. Can the shareholders ask PWC to return the fee that it earned from Satyam for issuing a unreliable report?

2. Should the shareholders (Auditor’s are representatives of the shareholders) sue PWC for damages?

3. Which are the other public and large private companies that PWC audited where the same audit team conducted the audit?  Should that not be made public so that the stakeholders of those companies know about the reliability of information in respect of those companies?

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This is a two in one post.

First part is the extract of the Satyam’s Auditors Report for the year ended 31 March 2008.  The second part is a view on the new board of directors constituted by the Indian Government.

Below is the extract of the Auditors’ Report of Satyam for the year ended 31 March 2008.  For many of you it will be a drab and uninteresting read.  That is why most people do not read and so do not even get to know when there are qualifications in the audit report.

May be that is the reason why many auditors also do not bother to qualify their reports

I have highlighted the relevant portions of the report which should have got qualifications from the auditors (qualification is nothing but highlighting an issue to the attention of the shareholders in respect, where the auditors (a) do not concur with the management (b) feel that something has happened that affects the “true and fair view” of the reported financials).

Now, over to you with the extract with highlights.

Quote

1. We have audited the attached Balance Sheet of Satyam Computer Services Limited (the Company), as at March 31, 2008, and the related Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of The Companies Act, 1956 of India (the Act) and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

(c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act;

(e) On the basis of written representations received from the directors, as on March 31, 2008 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2008 from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by the Act and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2008;

(ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Annexure to the Auditors Report

[Referred to in paragraph 3 of the Auditors Report of even date to the members of Satyam Computer Services Limited on the financial statements as at and for the year ended March 31, 2008]

1. (a) The company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the management according to a phased programme designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies between the book records and the physical inventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the company during the year.

2. The company has not granted/taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act.

3. In our opinion and according to the information and explanations given to us, having regard to the explanation that certain items purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchase of fixed assets and for the sale of services. The activities of the company do not involve purchase of inventory and sale of goods. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system.

4. According to the information and explanations given to us, there have been no contracts or arrangements referred to in Section 301 of the Act during the year to be entered in the register required to be maintained under that section. Accordingly, commenting on transactions made in pursuance of such contracts or arrangements does not arise.

5. The company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the rules framed there under.

6. In our opinion, the company has an internal audit system commensurate with its size and nature of its business.

7. (a) According to the information and explanations given to us and the records of the company examined by us, in our opinion, the company is generally regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income-tax, sales- tax, wealth tax, service tax, customs duty and other material statutory dues as applicable with the appropriate authorities. According to the information and explanations given to us and the records of the company examined by us, excise duty and cess are not applicable to the company for the current year.

(b) According to the information and explanations given to us and the records of the company examined by us, the particulars of dues of Income Tax as at March 31, 2008 which have not been deposited on account of dispute, are as follows:

According to the information and explanations given to us and the records of the company examined by us, there are no dues of Sales Tax, wealth tax, service tax, customs duty which have not been deposited on account of any dispute. According to the information and explanations given to us and the records of the company examined by us, excise duty and cess are not applicable to the company for the current year.

Name of the statute     Nature of dues              Amount (Rs.)

Income Tax              Tax and Interest on         13,35,05,579
Act, 1961               disallowance of loss
                        in one of the STPs
                        and disallowance of
                        excess claim U/s
                        Section 10A.

Period to which the          Forum where the dispute is
amount relates               pending

2002-03                      The
                             Commissioner
                             of Income Tax
                            (Appeals)-I,
                             Hyderabad

8. The company has no accumulated losses as at March 31, 2008 and it has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year.

9. According to the records of the company examined by us and the information and explanation given to us, the company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date.

10. The company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

11. In our opinion, the company is not a dealer or trader in shares, securities, debentures and other investments.

12. In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the company, for loans taken by others from banks or financial institutions during the year, are not prejudicial to the interest of the company

13. The company has not obtained any term loans.

14. On the basis of an overall examination of the balance sheet of the company, in our opinion and according to the information and explanations given to us, there are no funds raised on a short-term basis which have been used for long-term investment.

15. The company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act during the year.

16. The company has not raised any money by public issues during the year.

17. During the course of our examination of the books and records of the company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the company, noticed or reported during the year, nor have we been informed of such case by the management.

18. The other clauses (ii), (iii) (b), (iii) (c), (iii) (d), (iii) (f), (iii) (g), (viii), (xiii), and (xix) of paragraph 4 of the Companies (Auditors Report) Order 2003, as amended by the Companies (Auditors Report) (Amendment) Order, 2004 are not applicable in the case of the company for the current year, since in our opinion there is no matter which arises to be reported in the aforesaid order.

                                                      Srinivas Talluri
                                                               Partner
                                                  Membership No. 29864
                                                  for and on behalf of
Place : Hyderabad                                     Price Waterhouse
Date  : April 21, 2008                           Chartered Accountants

Unquote

New Board of Directors

As I make this post, I learn about the appointment of three really eminent personalities as the new Directors on the Board of Satyam Computers.  This is an excellent move and will serve as a confidence booster.  Satyam, in the best of times, would not have dreamt of having such people on its Board.  Mr. Deepak Parekh, who has an enviable  and blemish less track record in HDFC, Mr. Kiran Karnik, former Head, NASSCOM (the face of Indian IT for the world), Mr. Achytan, (former SEBI member).  Both Infosys and Wipro have welcomed this move and appreciated the choice.

Seven more members will be co-opted in to the Board of Satyam by these three personalities.  It is important that the new members at least have a financial stake in the Company (LIC, Lazzards, L & T  etc.).  If this is not the case, the new members, however good they are, will not be able to contribute significantly for the revival of the Company after all the mess is opened up transparently and cleansed.

Few of my colleagues asked me if they can buy this stock.  My reaction was that one should not buy as any revival will take a longer time frame.  While the new Board can give assurance and credibility of future operations, they cannot set right the past.  Their credibility may help the stem exodus of clients and key employees from the Company.

But the Company also needs significant liquidity to continue its operations.  The new directors need also to understand the business and DNA of the organization called “Satyam”.  They have to take the help of consultants to set right the policies and procedures and implement new ones.

With these thoughts, I asked my friend, who is an eminent investment banker, what advise I should give my colleagues.  He opined that one should not jump to buy the shares now.  He says worst may not be over yet.  If one wants to invest, he should be willing to see the whole capital getting eroded as the worst case scenario.  He feels that there are better opportunities in the market and one need not have to pick Satyam shares at present, as a prudent investor.

I think it is a wise advise.

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TV channels have flashed the news that Satyam CEO and his brother (who, I think, is the MD of SIFY Technologies, the Nasdaq listed company) have been arrested.

They (the TV channels) are speculating that the CFO might also get arrested soon.

We will be in for some good breaking news as the investigations start and the mystery is unraveled by the perpetrator himself.

What is perplexing is the delay in the arrests; it took good three days before the arrest was made. Where there any negotiations going on behind the scenes all the while? We cannot rule out that.  Read this story “Raju treated with kid gloves”, in The Hindu.   The newspaper contrasts the treatment given to Mr. Ramoji Rao, Eenadu group Chairman when he was arrested for Margadarsi Chit Funds issue.

Was Mr. Raju and his fraud scripting team getting trained on “how to give non-contradicting statements?”.  Was the time used by Mr. Raju to destroy/ move away crucial evidences?  We cannot rule out these either.

There was no raid conducted of Mr. Raju’s residence or friends/ relatives’ places by the government sleuths during this period.  If it was done, the chances for destroyal of evidence would have lessened.

After all, Mr. Raju made a fraud confession.  Why he was not arrested immediately?  Take for example, some one murders somebody and sends a letter to the police station saying he has murdered so and so.  Will the police wait to arrest the person?

If some one who is a thief faxes a letter to the government and police giving details of his escapades, will the police wait for three or four days to arrest him?

While the delay in arrest causes suspicion, what gives confidence is the Government action to revamp Satyam Board.  Most likely this means, Mr. Mynampati will also be out of the Board and may be will not be the “Acting” CEO of the Company.  Note that he was part of the Board that approved the Maytas deal that would have helped “reverse” “SATYAM” problems to “MAYTAS”.

CLICK HERE & SEE WHAT HAPPENS

There will be new directors appointed by the Government, which is a very good development and augurs well for all the stake holders.  The Central Government I think has acted through the Company Law Board for this action using the provisions available under the Companies Act, 1956.   (These could have been used by Central Government evenwhen the Maytas deal was proposed or immediatley after the confession was made by Mr. Ramalinga Raju, without waiting for three or four days).  The extract of the provisions are given for your knowledge herebelow.

Sec 398 – Application to Company Law Board for relief in cases of mismanagement.

(1) Any members of a company who complain,

(a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner  prejudicial to the interests of the company ; or

(b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company;

may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the Company Law Board is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Company Law Board may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

Under Section 399, however, to make an application to the Company Law Board, atleast 100 shareholders have to get together or people holding 10% of the shares of the Company have to get together.   This in reality takes little time to happen.

But, there is a wonderful provision in Section 401, that arms the Central Government of India to act on its own as under:

Sec 401 – Right of Central Government to apply under sections 397 and 398.

The Central Government may itself apply to the Company Law Board for an order under section 397 or 398, or cause an application to be made to the Company Law Board for such an order by any person authorised by it in this behalf.

(Note: I have supplied the emphasis in blue color)

The Company Law Board has been granted powers by the Companies Act, 1956, under Section 402 and 403, to direct the company to cancel the contracts considered prejudicial to the Company and the shareholders’ interest and also can provide for regulation of the company’s affairs in the future as can be seen below:

Sec 402 – Powers of Company Law Board on application under section 397 or 398.

Without prejudice to the generality of the powers of the Company Law Board under section 397 or 398, any order under either section may provide for

(a) the regulation of the conduct of the company’s affairs in future ;
(b) the purchase of the shares or interests of any members of the company by other members thereof or by the company ;
(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital.
(d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely
(i) the managing director.
(ii) any other director,
(v) the manager,
upon such terms and conditions as may, in the opinion of the Company Law Board, be just and equitable in all the circumstances of the case ;
(e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d),

provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned ;
(f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or
398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference ;
(g) any other matter for which in the opinion of the Company Law Board it is just and equitable that provision should be made.

Sec 403 – Interim order by Company Law Board

Pending the making by it of a final order under section 397 or 398, as the case may be, the Company Law Board may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct
of the company’s affairs, upon such terms and conditions as appear to it to be just and equitable.

Thus, the powers of the Company Law Board are very wide .  Any directions for the administration and management can be given by the Company Law Board. In Shoe Specialities Ltd vs Standard Distilleries & Breweries (P) Ltd & Others (reported in Chartered Accountant, March 1997), it was held that when a case of oppression is made out, it is within the powers of CLB to end the matter and make such orders as it thinks fit. While considering to end the matters complained of and when given the power to make any such order as it thinks fit to rectify the same, the CLB is empowered to remove the Board of directors so that the affairs of the company could be set right.

You might be already aware of these or may be getting to know of these only now.   I just thought it would be beneficial for the readers to know about these sections so that in future they suspect any act of mismanagement in a Company they can move to the Company Law Board or the Ministry of Company Affairs, (www.mca.gov.in) Indian Government for moving the Company Law Board.

The only problem is unscrupulous promoters moving the Honorable Courts, contesting the order of the Company Law Board and getting a stay and thus buying time    .

One interesting action as part of shareholder activism can be using the Right to Information Act and seeking from Company Law Board, details (including status) of the complaints made by the shareholders of various companies under Section 397 of the Indian Companies Act, 1956 or by the Central Government under Section 401 of the said Act.

Anybody game?

On the side lines – I liked this quote I received in a newsletter:

“We are suspicious of those CEOs who regularly claim they do know the future – and we become downright incredulous if they consistently reach their declared targets. Managers that always promise to “make the numbers” will at some point be tempted to make up the numbers.” – Warren Buffett

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